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1 BILL BOYD

Bar Card No. 02780000


2
bi ll@boyd-veigel.com
3 RUSS A. BAI(ER
Bar Card No. 24045440
4
russ@boyd-veigel.com
BOYD-VEIGEL, P.C.
5
P. O. Box I 179
6 McKinney, Texas 75070
Telephone: 972/562-9700
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Telecopier: 972/562-9600
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Attonleys Pro hac vice
9

10
UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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UNITED STATES OF AMERICA § Criminal No. 94-0276-CAL
13
§
14 VS. §
§ Amended l\tlotion Pursuant to 28 U.S.C.
15 § 2255 to Vacate, Set Aside or Correct
CONNIE C. ARMSTRONG, JR. Judgment and Sentence
16

17

18 COll1es now, Defendant, Connie C. Annstrong, Jr., in the above l1unlbered and styled cause

19 of action and presents this Motion pursuant to 28 U.S.C. 2255 attacking thejudgement ofcol1viction
20 and sentence ilnposed by this court.

21 Name: Cmillie C. Annstrong, Jr.


Prison NUlnber: 88762-011
22
Place of confinement: Seagoville Federal Prison Canlp
23 Court Name: United States District Court Northen District of California
Case No. 94-0276-CAL
24
Sentencing Judge: Judge Charles A. Legge
25 United States v. Connie C. Annstrong, Jr.

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE,


SET ASIDE OR CORRECT JUDGMENT AND SENTENCE
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1 MOTION
2 1. Name and location of court which entered judgment of conviction under attack:
3
U.s. District Court California Northern District (San Francisco)
4
2. Date of jUdgment of conviction: August 24, 2000
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3. Length of sentence: 108 Months
6
4. Nature of offenses involved (all counts):
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18:23 14 & 2 Stolen Property & Aiding and Abetting (1)
8 18:23 14 & 2 Stolen Property & Aiding and Abetting (2)
18:2314 Stolen Property (3)
9
18: 1343 & 2 Wire Fraud & Aiding and Abetting (4-5)
10
18:1343 Wire Fraud (6)
] 8: 1343 & 2 Wire Fraud & Aiding and Abetting (7)
11 18: 1343 & 2 Wire Fraud & Aiding and Abetting (8-10)
18:]343 Wire Fraud (11-14)
12
18: 1343 Wire Fraud (19-2 1)
13
5. What was your plea:
14
(a) Not guilty ex )
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(b) Guilty ( )
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(c) Nolo contendere ()
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If you entered a guilty plea to one count or indictment, and a not guilty plea to
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another count or indictment, give details:
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6. lUnd of trial (Check one)
20

(a) .T ury ( x)
21
(b) Judge only ( )
22
7. Did you testify at the trial?
23

24
Yes(x) No()

25

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1 8. Did you appeal from the judgment of conviction?
2
Yes (x) No ( )
3
9. If you did appeal, answer the following:
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(a) Name of court: u.s. Court of Appeals for the Ninth Circuit
5 (b) Result: Lower Court's Decision Affinned
(c) Date of Result: 4/15/2002
6

7 10. Other than a direct appeal from the judgment of conviction and sentence have you
previously filed any petitions, applications or motions \vith respect to this judgment in
8
any federal court?
9 Yes (x) No ( )

10 11. If your answer to 10 was "YES" give the following information:

11 (a) (1) Name of court: United States Court of Appeals for the 9 1h
District
12

13 (2) Nature of proceeding: Motion for Rehearing after 9 th Circuit


affinnation of conviction on direct appeal.
14
(3) Grounds raised: San1e as direct appeal
15

16
(4) Did you receive an evidentiary hearing on your petition, application
or motion?
17 Yes() No(x)

18 (5) Result: Motion for Rehearing denied and mandate issued in 2003, but
nlandate was recalled and the order denying the motion for
19
reheaJing was withdrawn due to lack ofnotice to defendant by
20 the 9th Circuit. The order denying defendant's motion for
rehearing was denied and nlandate re-issued on April 22,
21 2008. Therefore, the one year Statute of Lin1itations to file
this n10tion did not begin tolling until April 22, 2008. See
22
exhibit #] attached to this motion.
23
(6) Date of result: April 22, 2008
24
(b) As to any second petition, application or nlotion giye the same
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infornlation:
Not Applicable

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1

(c) As to any third petition, application or motion, give the same


2
information:
3 Not Applicable

4
(d) Did you appeal to an appeJiate federal court havingjurisdiction the result
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of action taken on any petition, application or motion?

6 (1) First petition, etc.


Yes () No (x)
7

8 (e) lfyOlJ did not appeal from the adverse action on any petition, application
or motion, state briefly why you did not:
9 Continuation of a direct appeal on the nlerits or a
Motion pursuant to 28 U.S.C. 2255 would be the proper
10
remedy.
11
12. State concisely every ground on which you claim that you are being held unla\vfu))y.
12 Summarize briefly the facts supporting each ground. If necessary, you may attach
pages stating additional grounds and facts supporting same.
13

14
A. Ground One:
15
Defendanfs prosecution and subsequent conviction were unconstitutional due to
16
proseclItorial nlisconduct caused by political influence which caused the Petitioner to be deprived
17
of his right to a fair trial, his ability to 1110unt a defense to the charges against hinl, and his light to
18
effective assistance of counsel at trial.
19

20
Supporting Facts:
21
.Introduction:
22
Connie Anllstrong, Jr. received the following infonnation six years after his conviction in
23

this case. As a result, these issues either could not have been properly raised on direct appeal or
24

properly presented on direct appeal. Mr. Anl1strong's only course of action at this stage in the
25

proceedings is a Motion to Set Aside and Vacate Judgment pursuant to 28 U.S.C. 2255.

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE,


SET ASIDE OR CORRECT JUDGMENT AND SENTENCE
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1 In an effort to ren10ve the defendant as CEO and dismantle Mr. Amlstrong's C0111pany,
2 vmious plivate and political sources nlislead and pressured the govenlnlent to prosecute Mr.
3 Annstrong even though the govenmlent had already investigated the case and concluded no
4
violations of federal law had been cOlnmitted. The new evidence received by Mr. Annstrong taken
5
in conjunction with the infomlation known at the tinle of trial it is clear that Mr. Armstrong did not
6
con1111it any crinle because he lacked the requisite "intent to defraud" and none of Hanlilton Taft's
7
clients suffered any financial loss at the hands of Mr. Ann strong. In fact, it is clear from the
B
conclusion ofthe bankruptcy proceedings against Hamilton Taft that no client suffered financial loss
9
due to their involvement with HaInilton Taft. Ho\vever, any perceived losses to clients at the time
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crinlinal charges were pending against Mr. Annstrong were losses caused by Hamilton Taft's clients
11
thenlselves. It is also clear the government prosecuted Mr. Armstrong knowing he had not violated
12
any federal climinaJ ]a\vs and only did so due to pressure created by Hamilton Taft clients, enoneous
13
media publications concenling Hanlilton Taft, and certain politicians such as Howard Baker, Nancy
14
Pelosi, Barbara Boxer, and then seated deputy director of the FBI, L.A. Potts.
:i5
The simple fact of the matter is the issues surrounding Hamilton Taft's use of its client's
16
funds for whatever purpose was a civil matter) not a criminal matter. Because the govemnlen1
17
rushed the prosecution ofMr. Anl1strong, rather than allow these issues to be resolved in civil court,
18
the government and the court confused the issues for the jury and ultinlately ended up successfully
19

20
convicting an innocent man.

21
COlmie Annstrong, Jr. \vas originally indicted of 21 counts of fraud on, June 27, 1994, In

22 relation to his actions as the CEO of a con1pany called Hanlilton Taft (hereinafter collectively

23 referred to as HT). Although~ the gIn Circuit Court of Appeals ultimately vacated Mr. Annstrong s 1

24 conviction on several counts, he was sentenced to 108 n10nths in prison and some 62 111111ion dollars

25 in resti tution. The restitution allegedly owed by Mr. Annstrong was later refomled to one 111illion

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1 dollars.
2 HT was a Hfor profit" tax services corporation. In other words, HT's operations centered
3
around paying its clients' state, local, and federal payroll taxes. HT also prepared the conesponding
4
tax returns and quarterly reports for its clients as well. HT executed contracts with its clients which
5
required the clients to deposit the amount of money owed to the taxing authority to HT before the
6
due date for the taxes. In return, Hamilton Taft would prepare the tax statement and pay the client's
7
taxes. Hamilton Taft did not charge a fee for its services. However, per the HT/c1ient contract, HT
8
was authorized to use client monies for its benefit before the taxes were ultimately paid to the
9
relevant taxing authority. Also according to the contacts between HT and its clients, ifHT failed to
10
pay the taxes in a timely fashion, HT would be responsible for ALL penalties and interest accrued
11
from any late payment of the taxes owed.
12
The government alleged that Mr. Annstrong invested in unauthorized long telln investnlents
13
and personal expenditures rather than liquid short term lllvestnlents. See exhibit #2. The
14
govel1llnent's contention that Mr. Annstrong had defrauded its clients centered around their position
15
that these longer tenn investments caused HT to either pay client taxes late or not at all. Id.
16
According to the government, HT's failure to pay clients' payroll laxes on time created a deficit
17
which mnounted to some 90 million dollars. ld. The claim was Mr. Annstrong was using HT to .'
18
run a '"ponzi" schelne where he would use ne\v client monies to pay old client tax delinquencies, i.e.,
19

fill the hole, thereby creating an ever increasing deficit for HI. Jd. At trial, the govemnlent relied
20

21
on several oEBT's clients, such as Federal Express, Scott Paper, and R.R. Donnely, as the alleged

22 victims to the fraud perpetrated by Mr. Arnlstrong. ld. The govenl111ellt claims these client

23 C0111panies lost nlillions of dollars at the hands ofMr. Annstrong's fraud. Id.

24 It is noteworthy that HT was embroiled in the civil bankruptcy proceeding \vhile Mr.

25 Amlstrong's crinlinal proceeding was pending. This involuntary bankruptcy action was initiated

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1 before Mr. Annstrong was indicted and did not conclude until after Mr. Armstrong was convicted. l

2 Rather than waiting for all of the evidence to come out and all of the 1110ney to be accounted for
3
pursuant to the bankruptcy proceeding, the govenmlent chose to prosecute Mr. Amlstrong with
4
inCOlnplete, and inaccurate evidence because they Imew securing a conviction against Annstrong
5
would be impossible once an accurate accounting of HT assets was completed.
6
Subsequent to Mr. Annstrong's conviction, new evidence has been discovered. It is clear
7
the government was aware of the existence of this evidence at the time of trial and deliberately
8
withheld this infonnation from Amlstrong. This new--evidence proves Mr. Armstrong's prosecution
9
was based on prosecutorial misconduct, corporate malfeasance, and undue political influence.
10
Additionally, the alleged elTors at trial, i.e., late disclosure of Brady 11laterial, the court's
11
unwillingJless to grant a continuance to review the material, and the court's unwillingness to properly
12
instnlct the jury the laws oftrust and Mr. Armstrong's theory ofdefense become even nlore hamlfuI
13
in light of the new evidence. In order to adequately explain Mr. Amlstrong's current position, it is
14
important to understand the circumstances in which Mr. Annstrong acquired HT and exactly ho\v
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HT dealt with its clients on a contractual basis. Much of the ne\v doculnentation that is in Mr.
16
Anl1strong's possession will be referenced throughout this lnemorandum. The docu1l1ents referenced
17
,\vill be attached as exhibits to this men10randum.
18

19

20
ARMSTRONG'S HISTORY:

21
In 1986 Am1strong started Dresdner Enterprises, a Dallas-based corporation. (RT 492.)

22

23 lThis fact is relevant because, at trial, the government relied on a


preliminary, inaccurate bankruptcy trustee report that stated HT only had
24 some 5 million dollars in assets. The government's claimed this amount was
far less than HT would have needed to cover all of its tax liability. See
25 exhibit #22A.

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1 Dresdner was an acquisition conlpany which Annstrong used to buy undervalued prope11ies in an
2 effort to tum them into to profitable Enlerplises. (RT 4292). Annstrong's experience in this regard
3
enabled him to recognized HT as troubled, yet undervalued company that could be turned into a
4
profitable enterprise.
5

6
THE ACQUISITION OF HAMILTON TAFT BY ARMSTRONG:
""7
I

HTwas founded in 1979. HT services have always centered around providing its clients with
8
payroll tax preparation and payment services under the same general structure as it did when Mr.
9
Annstrong was the CEO of HT. In other words, HT has ALWAYS entered into contractual
10
relationships with its clients wherein clients would deposit money for its taxes to HT and HT in tum
11
was allowed to invest the monies for its own benefit until the clienfs taxes were ultimately paid.
12
H is important to note that, this was not a novel idea created by Mr. Annstrong and this type of
13
business had been conducted by HT since its inception in 1979.
14
In August of 1984 HT was sold to the Cigna Corporation. Then, on February 28, 1988
15
Maxphanna, a publicly traded corporation, purchased HT from Cigna. In late 1988, Mr. Am1strong,
16
a shareholder of the Maxphanna corporation, found out that HT was 1n financial difficulty. (RT
17
3487). Armstrong learned that Maxpbarma had bOlTowed money from HT and was having difficulty
18
paying it back because Maxphanna had not collateralized any ofthe loans it obtained [raIn HT. (RT
19

4323, 4349). Since HT's business was comprised only of its paYroll tax services to its clients, the
20

21
only way Maxphanna could have bOlTo\ved these monies was ifHT lent Maxphanl1a nlonies frOlll

22 HT's account. When Maxpharma took out uncollaterlized loans fronl HT these loans caused a

capital deficit 0[20 million dollars. (RT 3297,3298.) However, at the time HT was processing and

24 paying over 3 billion dollars in payroll taxes for its clients and therefore had no problenls covering

2S its obligation to pay client taxes. When Armstrong purchased HT, Amlstrong's concenl was ifHT

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1 was automatically shut down there would be 18 million in taxes that could not be paid because the

2 loans to Maxpharma were not collateralized. Unknown to Armstrong at the time ofhis trial, in 1988
3
the FBI, under the direction ofMike Yamaguchi, investigated HT and Maxpharma in regard to these
4
loans and the use of HI funds transferred to HT under contractual agreenlent by the clients and
5
detem1ined there had been no violation of federal laws. See exhibit #3. It was not until six years
6
after Mr. Annstrong was convicted and in prison that he began receiving this infomlation.
7
In January 1989, Annstrong retained Dallas law firm of Godwin, Carlton and Maxwell to
8
prosecute a shareholder's derivative suit against Maxphamla. (RT 213-214.) The suit alleged the
9
Maxphanna had borrowed at least 14 million dollars in unsecured loans fr0111 HI (RT 3597, 4349)
10
and, as a result, was attenlpting to sell offthe financially unstable HT \vithout shareholder approval.
11
In late March 1989, the majority shareholder of Maxpharrna, John Roberts, offered to give
12
Am1strong complete ownership ofRT if Armstrong agreed to take over the Maxphanna loans fron1
13
HT. Annstrong agreed and became the sole owner and CEO of HI. (RT 226-229, 4352.) See
14
exhibit #10.
15

16
HAMILTON TAFT'S INVESTMENT PROTOCOL AND CORRESPONDING CLIENT
17
CONTRACTS:
18
When Annstrong took control ofHT the deficit, known as the "hole," was estitnated at 20
19

111111io11 dollars. (RT A526, A906, 3600, 3296,4009.) This deficit represents the amount of taxes
20

21
which could not have been paid ifHT had immediately been shut down. When Anl1strong took over

22 HT. he realized the deficit had to be filled in order for HT to beC0111e secured. (RT 3931. 3957-

23 3958.) Annstrong believed he could tum HT into a profitable C0l11pany (RT 3127.4353) but knew

24 the only way to accomplish this was to collateralize the deficit with long tenll investn1ents that would

25 eventually cover the deficit through a return on said investnlents. (RT 3601,3968.)

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1 Amlstrong sought the advice of lawyers at Godwin, Carlton and Maxwell, Petit and Martin,
2 and an accounting opinion from Pete Marwick with respect to how HT's cash flow from clients
3
could be legally invested (RT 251,299,370). Tom Rosen, a transaction lawyer at Godwin, Carlton
4
and Maxwell advised Amlstrong that once a client company turned over its payroll tax funds to H T
5
a debtor/creditor relationship existed between HT and the client company. (RT 373.) Rosen nrrther
6
advised Armstrong that he could use the tax funds deposited with HI by client companies for
7
investments other than short-tenn overnight paper. (RT 299,425,427,455.) As such, a typical HT
8
client contract required clients to deposit tax funds with HT in a tinlely fashion as they became due.
9
See exhibit #3. The contract also stated that once tl1e money was received by HI it could be used
10
for the benefit ofHT. See Id. Ho\vever, the contracts then went on to say HT would be required to
11
pay the client's payroll taxes and sublnit the proper reports to the taxing agency and that HI was
12
responsible for paying any penalties and interest for late paYment of the client's taxes. See Id.
13
Nowhere, in the contracts did it limit HI to short tenn investnlents or any particular type of
14
investment at all for that matter. See Id. The contracts that HT presented to and HT's client's signed
15
were sinlple and straightforward.
16
This evidence alone shows Mr. Arnlstrong lacked the requisite intent to defraud in this case,
17
and the Court should have granted an instructed verdict.because the evidence was legally insuffici ent
18
to support a conviction. However, based on the new evidence in Mr. Alll1strong's possession it
19

becOllles clear the San Francisco DepartI11ent of Justice did not think Mr. Armstrong violated allY
20

21 federalla\vs and only prosecuted him in the first place due to intense pressure from Howard Baker,

22 Nancy Pelosi, Barbara Boxer, the director of the FBI, L.A. Potts, and a few ofHT's clients such as

23 Federal Express. This political parties involved also facilitated enoneous national and intenlational

24 llledia coverage. This infomlation, in conjunction with trial COUl1 error warrants a finding that the

25 evidence in the case was legally insufficient to support a conviction in this case. A1111strong

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1 maintains that at the very least a new trial is warranted.
2

3
THE DEMISE OF HAMILTON TAFT AND CONNIE ARMSTRONG CAUSED BY
4
FEDERAL EXPRESS AND IMPROPER POLITICAL INFLUENCE:
5
In July 1990, Steve Solodoffwas hired as controller for Hamilton Taft. (RTI024, 4075.)
6
Solodoffs employment at HT was temlinated as a result ofhis cocaine use. On Decelnber 24, 1990
7
and after his tennination from HT, Solodoffapproached the Federal Bureau oflnvestigation and the
8
San Francisco division ofthe Internal Revenue Service by filing a cOlnplaint alleging Mr. Annstrong
9
and HT were improperly diverting client monies. Documents reveal that Mike Ymnaguchi had
10
already investigated HT for this same claim in 1988. See exhibit #4. According to FBI
11
111emorandums, Solodoffwas told there was not enough evidence to support his claim that HT was
12
illegally diverting client monies. See exhibit #4. The FBI also told SoIodoffthe FBI had concerns
13
that significant liability existed if the govemn1ent caused the downfall of a private corporation by
14
ll1aking an overt investigation of the company without enough evidence. See exhibit #4. The FBI
15
was worried that if an unwarranted investigation against HT was made public causing HT clients to
16
cease doing business with the company, the government would ultimately be liable for the downfall
17
of HT. This was made clear to Mr. Solodoff.
18

As explained above, HT was started in 1979 and then purchased by Cigna in 1984. In
19

20
January of 1988, Cigna sold HT to Maxphanna. See exhibit #5. The sell to Maxpham1u was

21 accompJished by instructing HT to transfer five n1illion dollars to Howard Weil, a brokerage house

22 in Ne\v Orleans, so that a securities transaction known as a ·'reverse repo" could be done. 2 See

23 exhibit #6. In this transaction with Howard Weil, HT transferred five ll1iIlion dollars to Howard

24
2This type of transaction is done by converting cash into United States
25 treasuries and borrowing up to 95% against the value of the treasuries.

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1 Wei] for the purchase ofU.S. treasuries and then borrowed 4.5 million dollars against said treasuries

2 which \vas then transferred to Maxphanna pursuant to a loan agreement between HI and
3
Maxphanna. See exhibit #6. Maxphanna then paid Cigna for the purchase ofBT. See exhibit #5
4
and #6.
5
After the acquisition ofHT, Maxphanna began making loans to its own corporate officers
6
and outside persons who were acquainted with Maxphamla. See exhibit #5. These loans were 111ade
7
using HT funds and amounted to approxin1ately 14 million dollars. See exhibit #7. These loans
8
caused employees of HT to contact the FBI in 1988 and file a complaint that HT tax funds were
9
being used to fund unsecured loans. See exhibit #4. The contention in the cOlnplaint was that this
10
was improper because HT tax funds were qualified as trust monies. See exhibit #4.
11
In response to these cOlnpJaints, the U.S. Department of Justice began an investigation. See
12
exhibit #4 and #8. AUSA~ Mike Yamaguchi, was in charge of this investigation. See exhibit #4 and
13
#8. Prior to working with US Attorney's Office, AUSA Yamaguchi worked in the Pete Marwick
14
finn 's tax division. See exhibit #9. Naturally, the 1988 investigation of HT was well within
15
Yanlaguchi's area of expertise. On September 23, 1988, a letter addressing this investigation stated
16
that AUSA Yatnaguchi made a detennination that there was insufficient evidence to support the
17
contention that any vioJation of federal law had occurred-with respect to Maxphanl1a and HT. See
18
exhibit #8. Based on Yamaguchi's opinion in the matter, the Department of Justice closed the
19

20
investigation (see botton1 of letter). See exhibit #8.

21
On February 8, 1991, Richard Held sent US Attonley McGiven a letter asking for a

22 prosecution opinion as to wl1ether a violation of federal law had taken place with respect to the new

23 clainls against HT because the US Att0111ey's Office had already decided that no violation existed

24 on the exact sanle issue back in 1988. See exhibit #4. See also exhibit #11. AUSA Ya111aguchi was

25

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1 copied on this letter. See Id. This letter goes into great detail regarding what AUSA Ymnagllchi
2 discovered during his 1988 investigation. This letter describes all the concerns, the Howard Weil
3
transaction, the loans that were made between Maxphanna and HI for the purchase of HT fi'om
4
Cigna, including relevant financial statements. See exhibit #4 and #5. See also exhibit # 13. After
5
discussing all ofthese things in detail, the Department ofJustice again enlphasizes the US Attorney's
6
Office lacked the evidence to support a violation of federal law. See exhibit #4. In addition to these
7
two letters, there is also a March 8, 1991 memo, which is discussed in detail below, stating
8
repeatedly there is too much potential liability associated with an overt investigation against HT
9
because the government could be accused of wrongfully initiating the downfall ofHT. See exhibit
10
#12.
11
The March 8, 1991 lnemo di scussed events that had taken place since February 13, 1991.
12
The nlemo also mentions on numerous occasions the concern about the potential liability to the
13
govemnlent if any unfounded, overt investigation against HT were l11ade public. See exhibit #12.
14
The memo also goes onto discuss the fact that there are no victilllS and reiterates the need for a
15
victim be fore any investi gation sho uId be stated against HT. See exhibi t # 12. On Febnlary 12, I99] ,
16
a representative of Congresswomen Nancy Pelosi and Barbara Boxer provided the name of an
17
investigative reporter to an un-named contact 3 so that information regarding HT could be forwarded
18
to the ll1edia. See exhibit # 12.
19

On February 12,1991, Special Agent PKM and an agent frOlTI the IRS CTD receive calls froll1
20

21
an attorney at the Department of Justice in Washington, D.C. inquiring as to any FBI and/or IRS

22 connection \vith Hamilton Taft. See exhibit#12. On February] 3,1991, Special AgentPKM meets

23 with Solodoff after the Wall Street Journal inquires and was ren1inded abollt the lisle of the

24
3The contact is considered un-named because the government removed the
25 person's name from the memo before Mr. Armstrong received it.

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1 government being liable for any damage caused to HT due to an overt investigation against the

2 company. Id. Special Agent PKM also explained to Solodoff that there was no crin1e on the part
3
of HT since there were no victims. Id.
4
On March 6, 1991, Special Agent PI<M received a call from Special Agent Swain with the
5
TRS CID. Swain reported to PKM that he had been contacted by Ralph King, investigative reporter
6
for the Wall Street Journal, to confirm the IRS was conducting an investigation into HT. rd. Also,
7
on March 6, 1991, agent PKM received a written telephone message from King. At SaIne point on
8
the 6 th , King connects with PI<M and asks questions about a possible FBI investigation ofHT. Id.
9
PI<M responded as protocol dictated that HHe could neither confilTI1 nor deny any infonllation
10
regarding HT", and Ralph IGng was ~'perturbed by the answer." See Jd.
11
Special Agent PKM was then contacted by a representative of Sun Microsystenls. The Sun
12
representative reports that he was contacted by Solodoff and an attonley advising that Sun
13
Microsystems and numerous other HT clients were the victilTIS of fraud perpetrated by HT. Id. On
14
March 8, 1991, 20-40 alleged victims ofHT, including Federal Express, n1eet with Solodoff at the
15
offices of Sun Microsystems to discuss the matter. Id.; CRT 2449; 2450, 2840.) At this meeting,
16
Solodoffgave lhe representatives ofthe alleged HT victim cmnpanies a printed handout that clainled
17
Anl1strong was operating a Ponzi schen1e, "stealing" the clierHs' tax funds, and planned to run Hsouth
18
of the boarder." (RT 4076-4081; 4113, 4120.) Two days later these clients not only ceased fUlure
19

20
paynlents to HT but also began withdrawing already deposited funds from HT. (RT 3196.) These

21 clients did nol contact HT to inform HT they were stopping payn1ent or \vhy they \vere stopping

22 paynlents. See exhibit #3.

23 Five days after this 111eeting with Solodoff, on March 13, 1991, Federal Express files a civil

24 lawsuit against HT in Federal Court for the Northern District ofCalifOlll1a. See exhibit #14. Federal

25

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1 Express requested a temporary restraining order to freeze HT assets which was denied until an

2 evidentiary hearing can be held. See exhibit #14. The judge schedules an evidentiary hearing for
3 August 1991. Rather than having the evidentiary hearing to determine ifthere was enough evidence
4
supporting HT's alleged fraud on its clients to warrant freezing ofHT assets, Federal Express along
5
with Stanford University Hospital and Stanford University, filed a petition for involuntary
6
bankruptcy on March 14, 1991. See exhibit #15.
7
Meanwhile,just nine days after contacting the IRS and FBI seeking a story, Ralph King and
8
the Wall Street Journal published and unfavorable and erroneous front page article detailing how
9
Annstrong had defrauded and stolen money from HT clients. See exhibit #16. This article reports
10
An11strong's alleged scheme to defraud HT clients for 100 million dollars as fact without any
11
evidence other than hearsay and conjecture and before any evidence has been heard by the
12
Banluuptcy court. The Wall Street Journal article is promptly picked up by other 111edia outlets
13
across the country~ including the San Francisco press corp. On March 17, 1991, in response to this
14
media frenzy, politlcal pressure fron1 Baker, Pelosi and Boxer, and a fe\v angry HT clients (who were
15
falsely infoffiled), the FBI launches a fonnal investlgation of HT and Connie Annstrong. 4 See
16
exhibit # 17. It is noteworthy, this investigation was launched before any banla-uptcy court
17
proceeding had taken place andjust nine days after the March 8, 1991 FBI memo was issued stating
18
there was insufficient evidence to support a crin1e, there were no victims, and the government could
19

20

21

4An investigation which consi sted mainly of collecting incomplete


23 informat ion from the bankruptcy proceeding and placing a wire on one of
Armstrong's long time assistants in an effort to get a confess ion from
24 Armstrong. Incidentally, some 70 hours of "confession-less n and, therefore,
exculpatory, taped conversations between Armstrong and this assistant were
25 not disclosed by the government until the middle of trial.

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1 be exposed to significant liability if an overt investigation caused the demise ofHT. s See exhibit
2
#12.
3
On March 25, 1991, without an evidentiary hearing, HT is placed into banlu1.1ptcy, a lrustee
4
is appointed and Mr. Armstrong is removed as CEO of HT. See exhibit # 18. On April 2, 1991,
5
Trustees files a motion for an inlmediate temporary restraining order seeking to freeze HT assets in
6
bankruptcy court. The nlotion is granted. 6 See exhibit #19.
7
On April 3, 1991, the Deputy Director of the FBI, L.A. Potts, sends a letter addressed to
8
"Mr. Baker" detailing the actions of the Department of Justice's actions and widespread media
9
coverage in relation to HT and Connie Annstrong, Jr.. See exhibit #20. "Mr. Baker" is fonner
10
Senator Howard Baker, and Chief of Staff for President Reagan, and a melnber of the Federal
11
Express board of directors. Also, noteworthy, this letter was also sent to the representatives at the
12
offices of Nancy Pelosi and Barbara Boxer.
13
When the foregoing docUlnents are taken into account in conjunction with the facl thal the
14
FBI concluded HT had violated no federal laws for its actions in 1988 (and even noted as 11111Ch in
15
1991), it is clear the FBI began an overt investigation and sought to indict Mr. Armstrong based on
16
no new evidence all. Rather, the FBI investigation was started due to the pressure put OIl the
17
government by Federal Express board member, Howard Balcer and two nlelnbers of Congress, and
18

19

20 SIt should also be noted the IRS declined to join in any prosecution
of Mr. Armstrong, presumably because the IRS did not believe Mr. Armstrong
210r HT had committed any IRS violations. See exhibit #.

22 6On December 31, 1991, the bankruptcy trustee issues a report stating
that HT's assets were valued at roughly five million dollars, not nearly
23 enough to cover the alleged 90 million dollar "hole" created by Armstrong.
See 12/31/91 trustee report, exhibit #. The government relied heavily on
24 this report during the criminal proceedings against Armstrong. As it turns
out, this report was inaccurate as it was issued before the bankruptcy
25 proceedings were concluded.

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1 the unfavorable, erroneous Wall Street Journal front page article which nlade national and
2 international headlines. Clearly, the FBI was never inclined to investigate Anllstrong or HI until
3 these events created a false impression that Annstrong \vas defrauding its clients, an impression the
4
media and HI's ll1isinfonned clients immediately ran with.
5
Filing a petition that forced HI into involuntary bankruptcy gave Federal Express, Stanford
6
University and other HI clients a motive to pressure the FBI and the Department of Justice to seek
7
criminal charges against Armstrong. Placing HI into involuntary bankruptcy and freezing HT
8
assets, Federal Express, et a1., caused the downfall of a company and potentially caused many HT
9
clients to potentially incur Inillions in tax liabilities that they would not have incurred but for Federal
10
Express's actions. At the time, HT was set to process nine billion dollars in payroll taxes for its
11
clients in 1991. 7 With that kind of cash flow, HT was a healthy company regardless afany paYroll
12
taxes paid at the end of the quarter due to the purchase oflong tenl1 investments. IfFederaJ Express
13
and angry HI clients ended up forcing a seven billion dollar cOInpany into involuntary bankruptcy
14
by a filing that \vas made in error or in bad faith it would expose the petitioners to enonnous
15
liability.!! Indeed, a seven billion dollar liability would be tough for any company La withstand, even
16
a company as large as Federal Express.
17
Although the governnlent's position before the Wall Street Joumal article and the involuntary
18

19
7In 1990, HT processed nearly seven billion in payroll taxes. Taking
as true, the government's assertion that this Ponzi scheme of Armstrong's
20 created a 100 million dollar deficit in the company, HT was clearly not in
financial trouble or a candidate for involuntary bankruptcy as the deficit
21
only amounted to less than 1% of HT's annual cash flow.

22
Since the time of Armstrong's conviction and the bankruptcy proceedings
23 has concluded and the rest of the facts have unfolded, Federal Express may
still be liable to Armstrong for the demise of HT. Indeed, the government
24 may be liable to Armstrong for a 1983 ci vi 1 rights violation for a
malicious, unfounded prosecution in a case that was civil in nature, not
25 criminal because there were never any "victims n to begin with.

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1 banluuptcy proceedings was that there was no cnn1e on the part of Annstrong because there were

2 not victims (See exhibit #12), Federal Express, et a1. conveniently provided the govenlment with
3 several victinls. HI had withholding tax payments for a small percentage of its clients, however,
4
until HT was placed into involuntary bankruptcy all payroll taxes, including penalties had been paid
5
by HT for prior quarters. See exhibit #2]. However, by placing HT i11to involuntary bankruptcy
6
and freezing its assets on March 25,1991, before the paj'lnen1s and penalties were due on APli115,
7
1991 for the quarter ending on March 31, 1991, Federal Express, et a1. prevented HT from paying
8
its client's payroll taxes for the pI quarter of 1991. In other words, HT's own clients caused
9
themselves to be the "victims" the government did not have prior to the bankruptcy. Federal
10
Express, et a1. were responsible for their own losses, not HT. Although too late, Federal Express
11
surely recognized that it should have consulted directly with Annstrong and HT to better understand
12
what was going on before placing the company into involuntary bankruptcy. Ultilnately) the only
13
way for Federal Express to ensure it would not incur any liability for the del11ise of HT was to
14
pressure the government to pursue criminal charges against Armstrong.
15
On June 27, 1994, the governlnent secured an indictment against Connie Annstrong, Jr. for
16
21 counts of fraud. Mr. Annstrong plead not guilty and his trial by jury began in December 1996
17
and concluded on February 26, 1997. Mr. Annstrong was convicted on all 21 counts (although the
18
conviction on several counts was later vacated by the 9 th Circuit Court of Appeals) and sentenced
19

to 108 months in prison and 62 million dollars in restitution that he allegedly owed to the clients of
20

21
HT. His restitution was later refonned to one n1i1110n dollars. However, the banknlptcy case had

22 not concluded at the time Annstrong was sentenced.

23 The banlauptcy case concluded with a final trustee report by Hel11TIling Morse on

24 Septenlber 13, 1999. This report showed the liquidation ofHT assets at sonle 1 l3 Inillion dollars,

25 an anlount far in excess of the estinlated five n1i1110n dollars the govemnlent relied 011 eXlensively

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1 during Amlstrong's criminal trial. See exhibit #22. Why was the final number so much larger than

2 O1iginally estimated? Because Annstrong was not stealing HT client funds. Rather, he was
3
investing the funds in collateralized long tenn investments in HT's name in an effort to fill the 18
4
million dollar deficit he inherited when he took over the company frOITI Maxphanna. The trustee
5
didn't accurately depict the value of these assets. Also noteworthy from the final report is the fact
6
that Mr. AImstrong's plan to cover HI's inherited deficit worked. After aU HT assets were
7
liquidated, all HT creditors (clients) were paid the money owed to then1 from funds invested by HT,
8
and the bankruptcy tnlstee was paid 39 nlillion dollars. See exhibit #22. As it turns OLlt, the -FBI
9
was correct when it told Mr. Solodoff there was no crime without any victims. Based on the final
10
bankruptcy accounting, clearly, Mr. Annstrongnever committed any fraudulent crinle because there
11
were no victims.
12
These assets, however, were not taken into account by the govemnlent or HT's 11lisinfonned
13
clients when they conspired to take down HT and send Mr. Anl1strong to prison. Also not taken into
14
consideration by the govenlllent or HT's clients was the fact that at any tilne had Annstrong fel t HT
15
could not meet its contractual obligations to its clients, these investments could be liquidated to
16
cover the shortfall. Federal Express and The Wall Street Journal were too quick to brand Mr.
17
Annstrong a swindler and charge him with using a Ponzi scheme to defraud clients. In fact, the only
18
reason the "hole" in HT was growing was because Mr. Annstrong purposely made it bigger to
19

accomnlodate these long tern1 investments. This, o[course, is contrary to the govemnlent's position
20

21
that the hole kept getting bigger because Annstrong had to keep using ne\v client money to cover old

client obligations in order to keep facilitating the fraud. This mischaracterization by the govelllment

23 assumes an ""intent to defraud" that Amlstrong sinlply did not possess.

24 Had the govenllTIent 110t succumbed to the pressure to prosecute Mr. Anllstrong and, instead,

2S exercised SOlne prudence and waited for the outc01l1e of the civil case, the Federal District Court

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1 would have decided as a matter of law the status of the fund held by HT. The government would

2 have then realized that no crime was ever committed by Annstrong and they would have had the
3
final financial statements from the bankruptcy case to prove it. The government would have realized
4
that Federal Express and other HT clients caused their own losses (which ended up not being losses
5
at thanks to HT's long tenn investments) by destroYing a flourishing company.
6

7
GOVERNMENTS FAILURE TO TIMELY DISCLOSE EXCULPATORY AUDIO
8
RECORDINGS:
9
Near the end of trial, Mr. Annstrong was notified the government was in possession of
10
approximately 70 hours of audio recordings obtained by one of Am1strong's long tilne personal
11
assistants, working for and paid by the government. The existence of the tapes and the identity of
12
the infonnant were not disclosed at any time prior to trial.
13
Since the existence of these tapes was not disclosed until trial was well underway, trial
14
counsel was prevented from reviewing the material prior to the end of trial. It wasn't until after trial
15
concluded that trial counsel was able analyze the tapes and realized the tapes were actually
16
exculpatory because the recorded conversations between Mr. Amlstrong and his assistant showed
17
Mr. Armstrong~s lack of intent to defraud. Had the govemnlent disclosed this evidence in a manner
18
that would have allowed the court or the jury to hear the tapes during tria], the essential elenlent of
19

Hintent to defiaud" would have been conlpromi sed. Trial counsel requested a continuance whi ch was
20

21 denied. Further, trial counsel was unable to employ other counsel to review the tapes with trial

continued.

:23 In denyjng the motion for continuance, the Court relied upon the affidavit of FBI special

24 agent Hatcher. See exhibit #23. Special agent Hatcher testified that the seventy hours of tapes were

25 unrelated to the current prosecution and even underlined the word "unrelated" in his affidavit.

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1 Although, unknown at the tinle, this statement by Hatcher proved to be false. The recordings in

2 question were obtained via body wire placed on Mr. Amlstrong's personal assistant by the FBI.
3
Contrary to Agent Hatcher's assertion that the evidence was acquired by the Dallas FBI in an
4
unrelated investigation, FBI notes and men10randums reveal the recordings were obtained by the
5
request of and, under the authorizations of the US Atttomey for the Northern District of Cali fonli a,
6
Mike Yamaguchi. See exhibit #23. Mike Yanlaguchi, of course, was the AUSA overseeing
7
Mr. Annstrong's prosecution for alleged fraud in the Northern Districl ofCalifomia. Therefore, not
8
only was the U.S. Attorney's office aware ofthe tapes, the goven1lnent was not honest with the court
9
by acting as if they didn't know they existed before trial. The pressure upon special agent Hatcher
10
to conceal the nature of the government's acquisition of the tapes is revealed by the memOrandUl11
11
from the Deputy Director of the FBI to a fomler Senator, along with the offices Nancy Pelosi and
12
Barbara Boxer, outlining the progress of the investigation of Mr. Arnlstrong and HT. See exhibit
13
#20.
14
As stated previously, Mike YaJnaguchi had investigated HT for the exact same things in 1988
15
and detennined that no violations of federal law had been conlm.itted. See exhibit #8. The fact that
16
the FBI and U.S. Attorneys office decided to investigate and prosecute this case within nine days of
17
receiving pressure [rOlTI Howard Baker, Federal Express, Nancy Pelosi, Barbara Boxer, and the
18
media without any new evidence that HT had cOlnmitted a crinle Blakes the conceahnent of these
19

tapes even more egregious. The new" investigation of Amlstrong and HT consisted of gathering
Il
20

21 documents from an incomplete involuntary bankruptcy proceeding and trying to get a confession out

22 of Amlstrong by putting a wire on his closest personal assistant 9 . The fact that Anl1strong did not

23

24 9It is noteworthy, that during the some 70 hours of recorded


conversation, Armstrong was talking to a very trusted assistant whom he
25 would never have expected to be wired.

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1 confess to any wrongdoing or say anything indicative ofhi5 alleged Hintent to defraud" HT clients

2 is extremely credible evidence that he possessed no such intent. Rather, Mr. Annstrong believed
3 he wasn't doing anything wrong. The government's failure to produce this nlaterial~ exculpatory
4
evidence in a timely fashion is inexcusable and warrants a new trial in this case. See exhibit #23.
5

6
Ground Two
7
The trial court's failure to properly instruct the jury on the applicable law of the case deprived Mr.
8
Anl1strong of his Constitutional right to a fair trial and his right to due process. The trial court's
9
failure to give proper instnlctions not only confused the issues for the jury, but also improperly
10
allo\ved the jury to decide what the applicable law of the case was.
11
Supporting Facts:
12
In 1993, before the govemnlent secured an indictnlent against Amlstrong, the bankruptcy
13
tnlstee sought to recover preference payments paid to the IRS in the fonn ofpayro1l1axes by HT on
14
behalf of S&S credit. The judge on the bankruptcy case, ruled the monies in question were held in
15
tIllst by HT and, therefore, the trustee could not recover preference payments. 10 The trustee appealed
16
the ban]mlptcy comi' s decision to Federal District Court. The district judge, the sanle judge that
17
would ultimately preside over Annstrong's criminal trial, affirmed the banknlptcy court's decision,
18
i.e., that the funds in question were held in trust by HT and, therefore, the trustee was not entitled
19

to recover those monies as preference payn1ents. The trustee then appealed the District Court's
20

21 decision to the 9 th Circuit. This appellate action was extremely important to the crinlinal case

22
:opreference payments are payments made by the debtor in a bankruptcy
23 proceeding to a creditor near in time to the bankruptcy action being filed.
Typically, these payments can be recovered by the trustee in an effort to
24 resolve the bankruptcy. However, preference payments can not be recovered
if the debtor was holding the money in trust. See In re Hamilton Taft v.
th
25 S&S Credit, 53 F.3d 285 (9 Cir. 1995).

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1 because it would ultimately become one of Armstrong's nl0st inlportant theories of his defense.
2 Likewise, the govemmenCs actions with regard to this civil appeal are note\vorthy as well.
3
The government's whole case against Annstrong was that he was intentionally diverting
4
cHen t funds for personal use and, therefore, defrauding HT clients. The govenlment' sIegal pos'j tion
5
is correct, if and only if, HT was legally bound to hold client funds in trust, thereby creating a

fiduciary duty on the part of HT to its clients with regard to the monies. This is true because the
7
govemnlent lacked any evidence to prove Annstrong had the requisite "intent to defraud" needed
8
to prove a crime beyond a reasonable doubt. Therefore, the only legal basis the govenmlent could
9
rely upon to show the requisite "intent" of Armstrong was to claim the clients monies HT received
10
were to be held in trust.
11
The 9 th Circuit in 111 re Hamilton Taft v. S&S Credit, ruled against S&S Credit and the
12
government held that the funds in question were not held in trust by the debtor (HT), rather the
13
money was the property of the debtor. See 111 re Hamilton Taft v. S&S Credit, 53 F.3d 285, 288 (9 th
14
Cir. 1995)(opinion vacated as moot due to settlement agreenlent). The 9 1h Circuit stated:
15
111 this case, S&S does not contend that it committed a breach oftrust by conveying
16
the trust-fund taxes to Taft as consideration for Taft's promise to pay S&S 's tax obligations
17
and prepare the appropriate reports. Nor does S&S attempt to show that it arranged with
18
Taftfor the transferredfimds to be held in trust. J;Vhile two ofTaft 's clients arranged 10 have
19
their trust-fimd tax payments kept in segregated accounts, S&S and the other clients did 110t.
20

21 Instead, Taft extensively commingled all ofthefill1ds it received and treated thefilllds as its

22 own assets, using them to pay its operating expenses and investing the filllds for its OW11

23 benefit. Therefore, under ordinary principles of trust, Taft did not hold the funds ill trust.

24 Thus, the funds were the property ofthe debtor and the Jalluf.uy lax paymenls were subjecl

25

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1 to avoidance.
2 III re Hamilton Taft, 53 F.3d at 288. See exhibit #24.
3
After the 9 th Circuit issued its opinion, S & S Credit filed a petition for reheating ell banco
4
After S& S filed its petition for rehearing, the government stepped in and filed an anlicus briefwith
5
the 9 1h Circuit Court of Appeals explaining to the Court why it believed the Com1 should nIle the
6
monies were held in tnlst rather than becoming the property ofHT. Clearly, the govemnlent took
7
the time to file this brief because it knew the prosecution against Mr. Anllstrong would be in
8
jeopardy if the 9 1h Circuit ruled the monies were the property ofHT based upon the contract that was
9
executed bet\veen the parties. See exhibit #25.
10
Subsequent to the 9 1h Circuit's opinion, the trustee and S&S Credit settled the claim. After
11
settlement, and while a petition for rehearing was pending, the 9 th Circuit upon motion ofthe parties
12
vacated its opinion in In re Hamiltoll Taft as 11100t due to settlement. PresuTIlably, S & S Credit
13
petitioned the Court to vacate its decision as n100t due to government intervention. Anllstrong can
14
tbink of no reason that the trustee or S & S Credit would ask the court to vacate its decision,
15
especially since the settlenlent was precisely in ham10ny with the opinion in 1/1 re Hamilton Taft.
16
At t1,e beginning of trial, Am1strong filed a nl060n that asked the trial court to instruct the
17
jury at the start of the trial that the tax funds HT received froln its clients \vere not held in tnlst by
18
HT but were the property ofBT. (ER 110-155.) Once the funds were received by HT. it was rree
19
to use its cash flow to cover its operating expenses or to invest those monies for its own benefit. (ER
20

21
125.); See also exhibit #3 and #26. This motion to instruct the jury was, of course, based 011 the

22 language in the typical HT contract and on the 9 th Circuit's opinion in In re llamiltol1 T{~{t. 53 F.3d

23 285 (9 th Cir. 1995). As stated above, the Court concluded the funds were the property orthe debtor

24 (HT) and were not being held in trust for HT's clients. See Id. The district court denied the request

25 to instnlct the jury in this regard. The court stated that it did not think the 9 th Circuit's opinion was

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1 applicable to the case at hand, even though the case dealt with the same parties, under the sanle

2 contracts, with the sanle monies at issue.

3
At the end of tlia] , Annstrong proposed another jury instruction which essentially stated the
4
holding of In re Hamilton Taft as noted above. (ER 169.) The district court refused to give this
5
instruction also. Despite the 9 th Circuit's specific ruling on the how the funds in question were going
6
to be legally qualified, the district court stated it didn't think the nlonies could be treated by
7
Hanlilton Taft as its own assets. The court further stated it didn't think the monies could be used
8
to pay Hamilton Taft's operating expenses, nor did the court think the lTIOney could be invested by
9
Hanlilton Taft for its own benefit. The court went on to say, "1 think it's wrong." (RT 5473.)
10
The court's ruling did two things that affected Annstrong in an unfair maImer. First, even
11
though the court refused to give the requested instruction, in actuality no legal definitions or
12
instructions regarding "money held in trust" and 41nloney held pursuant to a debtor/creditor
13
relationship" were given to the jury. This improperly directed the j ury to detemline what the 1aw was
14
in this regard. This left the jury to detennine for itself what the law was, albeit incorrectly, before
15
applying the facts of this case to the law.
16
Secondly, the court's ruling opened the door to for the govenlment to argue that a trust
17
relationship existed between HT and its clients, even though-the HT client contracts specifically
18
stated otherwise. This gave the government an unfair advantage because it relieved the govemlnent
19

of its burden to prove Annstrong had an Hintent to defraud" beyond a reasonable doubt because the
20

21
jury was invited to lnerely aSSUlne the requisite "intent to defraud" ifHT held client nl0nies in trust.

22 Additionally, to conlpound matters, during sentencing the trial c0U11 used the preference

23 payments recovered by the trustee in bankruptcy to calculate the anlount of restitution Annstrong

24 owed. Therefore, the court used In re Hamiltoll Taft as a double edged sword against Amlstrong.

25 On the one hand, the 9 th Circuit's holding in Taft was not applicable at the guilt/innocence phase of

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1 the trial, i.e., client funds were trust funds, not the prope11y ofHT. And on the other hand, the court

2 ordered Amlstrong to pay restitution for the preference payments Taft enabled the trustee to recover
3
by holding the funds in question were the property ofHT.
4
The simple fact of the matter is that in the years since In re Hamilton Taft was issued by the
5
9 th Circuit, many courts have relied upon the legal holding espoused in the 111 re Hamilton Taft
6
opinion even though the opinion was vacated as moot. Annstrong nlaintains the trial court's denial
7
of his request for jury instructions in line with the holdings of 111 re J-Iamiltol1 Taft demands a new
8
trial, and AnTIstrong prays this court order a briefing schedule on his motion so that the parties lnay
9
have an opportunity to brief these issues.
10
Conclusion:
11
The new evidence received by Mr. Amlstrong in this case delTIOnstrates a pattern ofbehaviof
12
by the government that was improper, lnalicious and resulted in the wrongful prosecution ofMr.
13
Annstrong. Clearly, this pattern of behavior was caused, in part, by erroneous press coverage,
14
corporate nlalfeasance, and improper political influence to pressure the govenlment to prosecute Mr.
15
Annstrong even though the goven1TI1ent believed he was innocent. Further, this new evidence
16
proves the United States Attorney's Office, namely Mike Yamaguchi, knew the crimes he sought
17
to indict Mr. Annstrong for had already been investigated by his office and the IRS, both of which
18
concluded no crinle had been committed. Additionally, Mike Y mnaguchi knew the 70 hours of
19

exculpatory audio tapes existed because he is the one that authorized the tapes be n1ade in the first
20

21
place. The government's failure to timely disclose these exculpatory rnateJials to the defense was

22 a willful Brady violation. Based on the foregoing infoDl1ation, Mr. Anl1strong prays the COllrt grant

23 a briefing schedule and an evidentiary hearing. Should tIle court grant Mr. AnTIstrong's motion

24 pursuant to 28 U.S.C. 2255 in this regard, Mr. Arnlstrong maintains the evidence should be declared

25 legally insufficient to support a conviction, his conviction should be vacated and ajudgment ofNot

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE,


SET ASIDE OR CORRECT JUDGMENT AND SENTENCE
0509676/060452/5:8:09:15:45
Page 26
1 Guilty should be entered in his favor.

2 In the alternative, both of the grounds raised in this Inotion are sufficient to warrant a new

3
trial in Mr. Annstrong's case. With regard to Ground Two the trial court's refusal to properly
J

4
instruct the jury on the law of the case clearly deprived Mr. Am1strong of his right to due process
5
and a fair trial, confused the issues for the jury, forced the jury to improperly deterrnine the
6
applicable law! and prevented Mr. Armstrong from mounting a defense to the charges against hin1.
7
Even if the COUl1 believes that neither one of the grounds raised in this motion are sufficient to
B
warrant a new 11ial, clearly the cUlTllllative effect of these issues warrants reversal ofthe conviction.
9

10
13. If any of the grounds listed in 12A, B, C, and D 'were not previously presented, state
11
brieny what grounds were not so presented, and give your reasons for not
12
presenting them:
13
These facts were not available to the defendant during the period of til11e
14
encompassing direct appeal.
15

16
14. Do you have any petition or appeal now pending in any court as to the judgnlent
17
under attack?
18
, Yes () No (x )
19

20

21 15. Give the name and address, if known, of each attorney ,vito represented you in the

22 following stages of the judgment attacked herein:

23 (a) At Preliminary hearing

24 Court Appointed counsel, unknown nanle and address

25

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE,


SET ASIDE OR CORRECT JUDGMENT AND SENTENCE
0509676/060452/5:8:09:15:45
Page 27
1 (b) At arraignment and plea

2 Mike Murphy, unknown address


3
(c) At trial
4
Chester Brown, deceased
5
2450 Broad\vay, Suite 550
6
Santa Monica, CA 90404
7
(d) At sentencing
8
Chester Brown 1999; David Nickerson, unknown address
9
(e) On appeal
10
David Nickerson! unknown address~ pro se
11

12
(I) In any post-conviction proceeding
13
Bill Boyd
14
Boyd-Veigel, P.C.
15
218 E. Louisiana
16
McKinney, Texas 750769
17
(g) On appeal from any adverse ruling in a post-conviction- proceeding
18
Not applicable
19

20
16. \-Vere you sentenced on more than one count of an indictment, or on more than one

21 indictment, in the same court and at approximately the same time?

22 Yes (x ) No()

23 17. Do you have any future sentence to serve after you complete the sentence imposed

24 by the judgment under attack?

25 Yes() No(x)

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE,


SET ASIDE OR CORRECT JUDGMENT AND SENTENCE
0509676/060452/5:8:09:15:45
Page 28
1 Therefore, the movant prays that the Court grant an evidentiary hearing and after hearing the

2 evidence movant further prays the Court will set aside and vacate Mr. Armstrong ' s conviction and
3
grant any other relief the movant may be entitled to.
4

B Appearance Pro hac vice;


application pending
9
Boyd Veigel, P.C.
10 P.O. Box 1179
McKinney, Texas 75070
11 SBN 90001936
TEL: (972)562-9700
12
FAX: (972)562-9600
13

14

15 I declare under penalty ofpeIjury that the foregoing is true and correct.

16 Executed (signed) thi~%ay of ~.C-y


17

18
~
19

20

21

22

23

24

25

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE,


SET ASIDE OR CORRECT JUDGMENT AND SENTENCE
0509676/060452/5:8:09:15:45
Page 29
APPENDIX

-Time Line

-Flow Chart

-Exhibits:
1. Case Summary - USA v. Annstrong
Recall of Mandate
2. Indictment
3. HT Contract and Agreement
4. 2/8/91 Richard Held Memo to USA
5. Plaintiffs Original Petition - HT v. Maxphanna, et al
6. Case Sunm1ary - In re Hamilton Taft
7. Complaint - Bankruptcy Court - In re Hamilton Taft
8. 9/23/88 Richard Held Memo to USA
9. Yamaguchi History
10. Dresdner Note to HT
II. 10/29/81 Kimport Letter (Baker letter)
12. 3/8/91 FBI Memo
13. Financial Records
14. Civil Complaint - Federal Express v. HT
15. Involuntary Petition - In re Hamilton Taft
16. Ralph King - Wall Street Journal Article
17. 3/17/91 FBI Memo
18. Ralph King - Wall Street Journal Article
19. MemorandulTI in support of Application for TRO
20. 4/3/91 FBI Memo
21. Memorandum in support of Motion to Dislniss - United States
v. Connie Annstrong, Jr. and Richard Fowles
22. ] 999 Hemming Morse Trustee Report
22(a). 1991 Hemming Morse Trustee Report
23. Hatcher Affidavit and Associated Doeulnents
24. Case Law and Order of Affinnanee - HI' v. S&S Credit
25. Alnicus Brief
26. Transeripts
CONNIE "CHIP" ARMSTRONG
TIMELINE

1979
Hamilton Taft, Inc. created.

August 1984
Hamilton Taft sold to Cigna Corporation.

February 28, 1988


Maxphrama purchases Hamilton Taft from Cigna.

September 23, 1988


AUSA Michael Yamaguchi completes a federaf investigation into
Hamilton Taft's operations. Yamaguchi concludes that there
existed a lack of evidence to support a finding that there was
any violation of federal laws.

March 1989
Connie llChip" Armstrong acquires
Hamilton Taft 'from IVlaxphrama.

December 1990
Steve Solodoff fired from employment
at Hamilton Taft as a result of his cocaine use.

TIMELINE
0509647/060452/5: 1:09: 14:45
Page 1
December 24, 1990
Solodoff approaches the FBI and IRS and files complaint
against Armstrong and Hamilton Taft alleging that
Armstrong was diverting trust monies. This was the same
allegation investigated by Yamaguchi in 1988.

I
February 8, 1991
Letter sent from Special Agent (PKM) to USA McGivern and
AUSA Yamaguchi asking for a prosecution opinion at to whether
a violation of federal law had taken place. This letter discusses
the history of the 1988 investigation. It further discusses Baker
and McKensie, the lobbyist and law firm representing Federal
Express, and the former law firm of Hamilton Taft.
(See 2/8/91 letter)

I
February 11, 1991
Solodoff contacts ofFices of Congress persons Pelosi and Boxer.
A representative of Congresswoman Pelosi gave Solodoff the
name of an investigative reporter to contact with his information
about Hamilton Taft.
(See 3/8/91 PKM memo)

I
February 12, 1991
Special Agent PKI\/I and an agent from CID receive calls from
an attorney at the Department of Justice inquiring as to
any FBI and/or IRS connection with Hamilton Taft.
(See 3/8/91 PKM memo)

TIMELINE
0509647/060452/5: 1:09: 14:45
Page 2
February 13, 1991
Special Agent PKM interviews Solodoff.
(See 3/8/91 PKM memo and 3/6/91 PKM 302)

I
March 6, 1991
Special Agent PKM receives call from Special Agent Swain,
IRS-CID. Swain reports that he had been contacted by
Ralph King, investigative reporter for the Wall Street Journal.
King wants to confirm that the IRS is conducting an
investigation into Hamilton Taft.
(See 3/8/91 PKM memo)

I
March 6, 1991
Special Agent PKM, having been out of the office on March 5th ,
finds a telephone message dated 3/5/91 from Ralph King. King
finally connects with PKM on the 6th . King questions about a
possible FBI investigation of Hamilton Taft.
(See 3/8/91 PKM memo)

I
March 6, 1991
Special Agent PKM speaks with representative of Sun Micro
Systems. Sun Micro has been contacted by an individual
advising Sun Micro that they, and numerous other
Hamilton Taft clients, had become the victims of fraud
perpetrated by Hamilton Taft.
(See 3/8/91 PKM memo)

TIMELINE
0509647/060452/5: 1:09: 14:45
Page 3
March 8, 1991
A meeting of the alleged victims of Hamilton Taft meet at the
offices of Sun Micro Systems to discuss the matter.
(See 3/8/91 PKM memo)

I
March 13, 1991
Federal Express files civil suit against Hamilton Taft in
Federal District Court, Northern District, California. FedEx's
request for TRO freezing Hamilton Taft assets is denied.
An evidentiary hearing is scheduled for August 1991.

I
March 14, 1991
After refusal of the TRO, Federal Express files
to force Hamilton Taft into involuntary bankruptcy.

I
March 15, 1991
An unfavorable and erroneous article about Hamilton Taft is
published on the front page of the Wall Street Journal.

I
March 17, 1991
In response to the allegations in the Wall Street Journal,
a federal investigation into Hamilton Taft and
Connie Armstrong is initiated. This occurs only
nine days after the FBI memo stating that there exists
insufficient information to launch an investigation.

TIIVIELINE
0509647/060452/5: 1:09: 14:45
Page 4
March 20, 1991
Federal Express amends its complaint seeking relief
through the involuntary bankruptcy of Hamilton Taft.

I
March 25, 1991
Hamilton Taft is placed into bankruptcy. Armstrong is
removed as head of company and a Trustee is appointed.

I
April 2, 1991
Trustee files for immediate TRO in bankruptcy court.
Bankruptcy court grants motion resulting in Fed Ex's successful
freezing of Hamilton Taft assets without evidentiary hearing.

I
April 3, 1991
FBI sends memo to former senator, Federal Express board
members, Congress persons Pelosi and Boxer's offices
detailing the actions of the DOJ and discussing
the media coverage.
(See 4/3/91 memo)

I
December 31, 1991
Trustee report indicates that Hamilton Taft's value was
calculated at roughly five million dollars ($5,000,000).
-rhis was the report which was relied upon
throughout the criminal proceedings.
(See Trustee Report 12/31/91)

TIMELINE
0509647/060452/5: 1:09: 14:45
Page 5
1993
Trustee of Hamilton Taft files suit against S&S Credit to seek
recovery of preference payments made by Hamilton Taft on
behalf of S&S Credit. The bankruptcy court denied the motion.
Trustee appeals decision to the Federal District Court.

1994
Federal District Court affirms decision of bankruptcy court in In
Re Hamilton Taft v. S&S Credit. Trustee appeals Federal
District Court's decision to the 9th Circuit Court of Appeals.

June 27, 1994


Indictment against Connie Armstrong returned.

May 2, 1995
lh
9 Circuit Court of Appeals decides in favor of
Hamilton Taft in In Re Hamilton Taft v. S&S Credit.

August 1995
AUSA Yamaguchi files Amicus Brief on behalf of the IRS.
The brief raises the issue already decided by the
9th Circuit Court of Appeals.

Fall 1995
ll
S&S Credit and the Trustee Usettle As part of the settlement

agreement, the 9th Circuit Court of Appeals is asked to vacate


their opinion in In Re Hamilton Taft v. S&S Credit.

I
TIMELINE
0509647/060452/5: 1:09:14 :45
Page 6
October 12, 1995
In Re Hamilton Taft v. S&S Credit opinion vacated as moot.

I
December 1996
Trial begins in Armstrong criminal case. Despite the
fact that a sUbsequent analysis was conducted, the
December 31, 1991 Trustee's report is relied upon
to assess the value of Hamilton Taft.
(See Trustee Report 12/31/91)

I
February 26, 1997
Trial concluded.

I
September 13, 1999
Hemming Morse Trustee report is released.
This report shows the liquidation of Hamilton Taft for roughly
one-hundred thirteen million dollars ($113,000,000)
an amount far greater than the five million dollar value
previously reported in the December 31, 1991 study.
(See Trustee reports 9/13/99 and 12/31/91)

TIMELINE
05096471060452/5: 1:09: 14:45
Page 7
Howard Baker and Senators --I!lIl. ....- - - (
The ~_aard af Feder;:;1 Er.press

'1
DOJ - Wasl}h1gton Dl:

Gare Smith legal Called US Attorney


representative of Pelosi In C_,!l!fgrnia to PrQsetute
and Bor.er -tontacted Armstrong
in 2004 In FCI-Seagoville

...I;.lea;,.d;numbl!r
.;,u; ;S.;.;A,;,t~t.o..rof...n..;evitimes 19DD-Closed Investigation for a Criminal on
[ ·._, __....,......caFBI oi a.:.;n;,;;d....._ _- ' Illegal Acts. Refused to JODI: Into It until DOJ
From DC ca).l.ed.
If you view the full dockc. ...mline, you will be charged for 6 Pages Jl 0.42

us Court of Appeals for the Ninth Circuit


Case Summary

court of Appeals Docket #: 00-10399 Filed: 9/14/00


Nsuit: 0
USA v. Armstrong
Appeal from: Northern District of California (San Francisco)

Lower court information:


District: 0971-3 : CR-94-00276-CAL
court reporter: Leo Mankiewicz, Court Reporter

7/27/01 Calendar check performed [00-10399] (th)

8/6/01 Screening letter sent. {00-10399] (th)

4/8/02 SUBMITTED TO SCREENING PANEL 340. ( Oral) [00-10399)


[00-10399] (th)

4/15/02 FILED MEMORANDUM DISPOSITION: AFFIRMED ( Terminated on the


Merits after Submission Without Oral Hearing; Affirmed;
Written, Unsigned, Unpublished. James R. BROWNING, Andrew
J. KLEINFELD, Ronald M. GOULD) FILED AND ENTERED
JUDGMENT. [00-10399] (dv)

4 / ?9/02 Received aplt's motion for enlargement of time to file a


PFR with suggestion for rehearing en banc; no service date.
(STAFF) (Note: apl t has counsel; sent copy of motion to
counsel) [00 -10 3 9 9] [44192·15] [00 -10399] (dv)

5/29/02 [4443161] Received original and 50 copies aplt's petition


for rehearing with suggestion for rehearing en banc of 15
pages with exhibits served on OS/28/02. (STAFF) (Note :
aplt has counsel sent pfr to counsel) [00-10399] (dv)

1/21/03 Referred to STAFF re: status of petition for rehearing.


[4443161-1] [00-10399) (ea)

1/31/03 [4643063] Filed original and 50 copies Appellant Connie


Armstrong petition for panel rehearing and petition for
rehearing en banc of 15 pages with exhibits served on
OS / 2 8 / 02). [0 0 - 1 0 3 9 9] (dv )

,.. 1/31/03 Filed order ( James R. BROWNING, Andrew J. KLEINFELD,


Ronald M. GOULD, ) We grant apltis motion for an extension
of time to file a petition for panel rehearing and order
the brief received OS/29/02 filed. The panel has voted to
deny aplt's pfr and pfr en bane. The full court has been
advise of the petition for rehearing en banc and no judge
has requested a vote on whether to rehear the matter en
baen. The petition for panel rehearing and the petition for
re~earing en banc are deneid. No further filipgs shall be
aCcepted in this closed appeal. [4643063-1] [00-10399J (dv)
) I,·' i0j
0/03 ' ~~E ~~S~[00-10399] (dv)

=====P=A=C=E=R=s=e=r=v=i=c=e=c=e=n=t=e=r=======ill
i:=!

http://pacer.ca9.uscourts.gov/egi-bin/reports.pl?CASENUM=00-103 99&puid=0 1053014084 5/15/2003


nLt.D FILED
..", <1'. G'.J.
_~.... JI?tt 2S y.
UNITED ST ATES COuWr'OF ~}~!.~~~~~:~t APR 22 2008
-~\··'··G\')19. 0.\'\\
~\t. \,)~. ,C.\\I\ MOLLYC. DWYER. CLERK
FOR THE NINTJ~~krotf us. COURT OF APPEALS

UNITED STATES OF AMERICA, No. 00-10399

PIain tiff- APpe Ilee, Deft CR-94-276-CAL


Northern California
v. (San Francisco)

CONNIE ARMSTRONG, JR.) ORDER

Defendant-A ppellant.

Before: BROWNING, KLEINFELD and GOULD, Circuit Judges

Armstrong's letter is a construed as a motion to recall the mandate, and so

conslrued, lhe motion is granted. We recall the mandate issued on February 10,

2003.

The order issued on January 3 l, 2003 is withdrawn.

The panel has voted to deny the petition for panel rehearing.

The full court has been advised of lhe petition for rehearing en bane and no

judge has requested a vote on whether to rehear the matter en banco See Fed. R.

I\pp. P. 35.

The petition for panel rehearing and lhe petition rOf rehearing en bane are

denied. The mandate shall issue forthwith.

KH/Rcscilrcn
i,
~

, ..
..
4t .' FIL:!:O
~WIW e, '9~~
No. _
__:lII::II:I:::=:I:l=:=:-==:=:Z:::=======~""'...l.L'! NO~ltuli~/rm~~~~ ''C/I

UNITED STATES Q.t.S_T.RJ~! COURT rr"A.L


__ ~Q~TIiEJ~!J___ D~trict of ----C~l~Q~Ij.-O~ 76 ..
"

______ "_C_R~l~__ R~A C I-f

THE UNITED STATES OF AMERICA


tis.

CONNIE C. ARMSTRONG, JR. and


RICHARD A. FOWLES

INDICTMENT
18 U.S.C. § 2314 - STOLEN PROPERTY;
18 U.S.C. § 1343 - WIRE FRAUD
18 U.S.C. § 2 - AIDING AND ABETTING

Forrman

FiW in 0JH1I court tki5 tUry.

of A.D. 19 _

Bail. $ t~
(7~ I,

" T r~rehy t;eTlify that the annexed


Insr::um~~t .i~ a true and correct copy
of the cnglnal on file in my office.
Ai leST:
RICHARD W. WTEKING
Cle:rk, U.S District Court
., :-: ::;,=.13
Northe istricJ-pf Califomia
" ::--;) By '/;/"~ u7
PER \8 USL.

".
1"""~V ollbJ

[,.~. ,D-~FE.NDANT INFORtviA' 'I nl --I.TIVE TO A CRIMINAL AC' W'-=--- U.S. DISTRICT COURT

~'[,y OCOM~LAINT DINFORMA1,U BINDICTMENT N~me 01 Dllllla COU". anolor Juagel~tltee~ 1 ' 0

- uFFENSE CHARGED NORTHERN DISTRICT OF CALIFORNIA


18 U. S .:C. § 2314 - STOLEN PROPERTY;
18 U.S,C. § 1343 - HIRE FRAUD; . _ - - DEFENDANT - U.S. V~.

18 U. S .;C. § 2 - AIDING AND L......I P~I1V


ABETTING

o me~no(

Felonv

PENALTY See Attachment


.,
_ - - - - - - - - PROCEEDING
----,R94 _ . _ - - - - - - - - - OEFENOANT-_--&'_-:- _
Name at Complainant Agency, or Person (& Title. if any) IS NOTlN CUSTODY

FBI 1) fLl Has nOt been arresteo. pending outcome this proceeding
If not detained give date any prior summons ~
was served on above charges [L.... _

o
--
person IS awaiting tnal in another Federal or State Court. Is a Fugitive
gIve name ot coun Is on Bailor Rf'lease trom (show District)
.

o this person/Pror.eeding 15 transterred Irom another d,stnct


per Icircle one) F RCrP 20, 21 or 40. Show District /S IN CUSTODY
41 0 On this charge
5) 0 On another conl/iction } 0 Fed" OSt
this is a reprosecutlOn of charges 610 Awaiting trial on other charges
previously dismissed which were If an5wer to (6) is "Yes", show name of institution
SHOW
odismIssed on motion of:
U.S. AU'y ODefense DOCKET NO.

o this prosecution relates to a pending


case irwolving this same defendant
Has detainer
been filed?
I-J Yes
L......J No
If "Yes"
give date.
filed ,<------
o prior proceedings or aooearance{s)
before U.S. Magistrate regarding_
MAGISTRATE
CASE NO.
DATE OF ~
Mo. DilY Year

this defendant we~ recorded under ~ ARREST r


Or ... if Arresting Agency & Warrant were not Federal
N~me ~no Off,ce 01 P~',on Mo. Day \
Fy,nlln,ng In'Ofm.1l110n on
DATE TRANSFERRED [)
THIS FORM I
MICHAEL J. YAMAGUCHI TO U.S. CUSTODY V '------------
I

N~me
III
01 AUl
u"9"eal
u.s, AlI'V Eb F. Luckel
o ThIS repOrt amenas AO 257 prevlouslv sUbm'lted

. . - - - - - - - - - - - - - - - ADDI TlONAL INFORMA TION OR COMMENTS - - - - - - - - - - - -


PROCESS: Connie C. Armstrong, Jr. Request summons
c/o John Milano return date of 7/20/94
SUMMONS 507 Polk Street
San Francisco, CA 94102
BAIL (AMT).

NO PROCESS'"
~WHERE DEFENDANT PREVIOUSLY APPREHENDED ON COMPLAINT; NO NEW SUMMONS
OR, WARRANT NEEDED, SINCE MAGISTRATE HAS SCHEDULED ARRAIGNMENT
...

Maximun penalty each count

18 U.S.C. § 2314 - 10 years imprisonment


$250,000 fine
Supervised release of at least two years
but not more than three years.
$50 speci.:\l assessment , "
1r~J
CALf
18 U.S.C. S 1343 - 5 years imprisonment
$250,000 fine
At least two years~'knot mo
( ) C'
..
76
than three yea~' II f~; ~
$50 special as~ iJ";C
Cpmbined maximum penalty F\LEO
Armstrong 130 years imprisonment
$5.25 million fine J\:\~ ~ , i~~A
63 years supervised release .. _." .' v-I\~~\NC3
$1050 special assessments
t~~~~~~,~~~tir~~~Jt\~
NQRTHERri D
Fowles 60 years imprisonment
$2.25 million fine
27 years supervised release
$450 special assessment
- ./ ' .,.
'.,
,f
-.' I

, -
1 ORIGINAL
MICHAEL J. YAMAGUCHI
2 United states Attorney FILED

3 Attorney for Plaintiff JUN 27 1994


4 nlCHARD w, WIEKING
Ll ERK. u.s. DISTRICT COUnT
5 ~JO!~rH[liN DISTRICT OF CALIFORNIA

7 UNITED STATES DISTRICT COURT

8 NORTHERN DISTRICT OF CALIFORUIA ',CAL


l(}R~4: 0276
9 UNITED STATES OF AMERICA,

10 Plaintiff,
) YIOLATION: Title 18, united
11 v. ) States Code, Section 2314 -
} STOLEN PROPERTY; Title 18,
12 CONNIE C. ARMSTRONG, JR. and .) United States Code,
RICHARD A. FOWLES, ) Section 1343 - .WIRE FRAUD
13 ) Title 18, United ~tates Code
Defendants. ) Section 2 - AIDING AND
14 ) ABETTING

15 I N DIe T MEN I
' ..
16
INTROPUCTORY bLLEGA1IONS
17
The Grand Jury charges that:
18
1. Hamilton Taft & Company, Inc. ("Hamilton Taft")
19
",as incorporated in California in 1979. Its business was to
20
provide payroll tax services to companies ("clients") with
21
large payrolls. Clients transferred funds to pay their payroll
22
taxes to Hamilton Taft, and Hamilton Taft was, in turn,
23
obI ig~.~ed to pay the ·taxes to the Internal Revenue Service and
24
·to-other taxing authorities when they were due.
25
2. ,Funds for' federal income and soclalsecurity
26
taxes withheld from employees· wages accounted for most- of the

Exhibit "1\"
000001
.- If

1
funds transferred to Hamilton Taft~__ A company with a large
2
payroll is required to pay these federal taxes to the IRS each
3
time its employees are paid, commonly twice a month.
4
. .... . 3• Hamilton Taft had the use of funds it received
,,~. ~.5 . 'li>

fram clients for limited periods of time before the taxes were
6
due. In the case of federal income and social security taxes,
7
Hamilton Taft had use of the funds for a day or less, except
B
for the "safe haven," an amount equal to five percent of the
9
tax, which was due as much as sixty days later. Most of
10
Hamilton Taft's income was earned by investing the funds it
11
received to pay its clients' taxes in risk-free, short term,
12
liquid investments.
13
4. In addition to paying taxes, Hamilton Taft often
14
provided other servic~s, such as preparing and filing Quarterly
15
Employer Tax Returns, Forms 941. These tax returns are due the
16
last day of the month folloving the end of each quarter.
17
5. The IRS assesses penalties for payroll taxes
18
that are not paid when due, cplled "failure to deposit lt

19
penalties. Absent reasonable cause, vhen any tax payment is
20
missed, a failure to deposit penalty will be assessed, even"if
21
the tax has been paid by the time the quarterly tax return is
22
due. The IRS usually bills a taxpayer for a failure to deposit
23
penalty several months after the tax return for the quarter is
24
filed. If taxes remain unpaid after the quarterly tax return
25

26 I N DIe T MEN T
(Armstrong , .Fowles) 2

000002

1
is filed, an additional penalty, called a "failure to pay"
2
penalty, of one-half percent per month, is assessed and
3
interest is charged on the unpaid balance. The IRS usually
bills a taxpayer for a failure to pay penalty shortly after the
5
quarterly tax return is filed. Thus, failure to pay penalties
6
are typically due months earlier than failure to deposit .
7
penalties.
8
6. Connie C. Armstrong, Jr. ("Armstrong") acquired
9
Hamilton Taft on or about March 3~. 1989. At that time,
10
Hamilton Taft had a working capital deficit of over $14 ~il11on
11
~ue to misappropriations by prior owners of funds received from.
12
clients. The deficit'created a shortage of funds to pay taxes,
13
but taxes could still be paid on time because some of the funds
14
received, such as funds for the five percent safe-haven and for
15
var}ous state and local taxes, were not due immediately. This
16
enabled Hamilton Taft to cover shortages from later collections
17
of funds without falling behind in the payment of taxes and
18
incurring penalties.
19
7. From Armstrong's acquisltion of Hamilton Taft in
20
March 1989, to March 1991, when a trustee in bankruptcy was
21 .
appointed to run Hamilton Taft, Armstrong was Hamilton Taft's
22
chief executive officer and its sole director and shareholder.
23
During much of this time, Richard A. Fowles ("Fowles") was
24
president of Hamilton Taft. At other times, Fowle~-served-
25

26 I N DIe T MEN T
(Armstrong & Fowles) 3

000003
1
Hamilton Taft or a related entity ~~other capacities.
2
PREAMBLE TO COUNTS ONE THROUGH TWENTY-ONE
3
The Grand Jury 'furthe r charges tha t :
4
8. Beginning around March 31, 1989, and continuing
5
thereafter to around the end of March, 1991, in the City and
6
County of San Francisco, state and Northern District of
7
California, and elsewhere,
8
CONNIE C. ARMSTRONG, JR.,
9
defendant herein, knowingly aided and abe~ted by
10
RICHARD A. FOWLES,
11
defendant herein, devised and intended to devise a schemenand
12
artifice to defraud and to obtain money from companies that had
13
contracted with Hamilton Taft for payroll tax services by means
14
of false and fraudulent pretenses, representations, and
15
promises. The, scheme is described in paragraphs 9-23.
16
o The piyersions
17
9. Armstrong caused funds received by Hamilton Taft
18
for the payment of taxes to be diverted to companies he
19
controlled for investment purposes and operati~g costs, or to
20
himself for personal expenditures. In less than two years,
21
approximately $55 million (net) vas taken out of Hamilton Taft
22
for these purposes and replaced with various notes and bonds.
I
23
10. The investments made with the diverted funds
24 .
included the purchase of 011 and ~as leases, participation in a
25

26 I N DIe 'j-M E N T
(Armstrong & Fowles) 4

- I
,-
000004
, "

(J

1
shopping center joint venture, and_p~rchases of various real
2
estate interests. The operating costs paid with diverted funds
3
included skyboxes at Texas Stadium and a lavish Fourth of JUly
4
party. The personal expenditures of diverted funds included
5
the purchase of a ranch and political and charitable
6
contributions.
7
The Holding Back of Tax Payments
8
~1. As a result of the diversions, Hamilton Taft was
9
unable to pay all of its clients' taxes when they were- due]
10
When tax payments were not made when due, penalties, which
11 '.
Hamilton Taft was responsible for paying, were incurred. This
12
increased the need to hold back more taxes because more funds
13
were needed to pay the penalties.
14
12. The non-payment of taxes began in the third
15
quarter of 1989 when approximately $25.• 3 million in tax
16
payments were held back. Beginning in the first quarter of
17
1990, Armstrong caused taxes to be held back each quarter. The
18
holding back of taxes increas~d as follows:
19
First Quarter 1990 $19.4 million
20
Second Quarter 1990 --- $37.8 million
21
Third Ouarter 1990 ---- $45.0 million
22
Fourth Quarter 1990 --- $57.0 million
23
First Quarter 1991 ---- $68.2 million
24
13. As time passed, Hamilton Taft became
25

26 I N DIe T MEN T
(Armstrong , Fowles") 5

"-

000005
l.J

1
~ncreaSinglY dependen~ o~ the rece!p~ of additional funds from
2 ~ . r

clients to pay the taxes of clients whose taxes had been held
3
back earlier and to pay penaltiesJ By the time the trustee in
4
bankruptcy was appointed to take over Hamilton Taft in March
5
1991, the cash shortage to pay taxes had increased to
6
approximately $85 million and the unpaid penalty liability was
7
approximately $8 million more.
8
The Penalties
9
14. The holding-back of taxes resulted in a penalty
10
liability to Hamilton Taft of approximately $15 million. By
11
the time the trustee in bankruptcy was appointed, approximately'
12
$7 million of this liability had been paid. The penalty
13
liability alone: vastly' 'exceeded Hamilton Taft's income, even
14
wi thout consideration of' i ts othe~ operating expenses •
.15
The Fraud In the Inducement
16
15. It was part of the scheme to fraudulently induce
17
companies to enter into tax service agreements ("contracts")
18·
with Hamilton- Taft~. J
19
16. Acting through regional sales representatives,
20
Armstrong attempted to sell Hamilton Taft's payroll tax
21
services to large companies throughout the United states.
22
During initial contacts and throughout the negotiations,
23
prospective clients were assured that Hamilton Taft was capable
24
of professionally and reliably providing all the payroll tax
25

26 I N DIe T MEN T
(Armstrong' Fowles) . b

000006
1
services it offered including, mosL}mportantly, the timely
2
payment of payroll taxes. Potential clients were encouraged to
3
contact existing Hamilton Taft clients as references and were
4
led to believe that Hamilton Taft was financially secure.
5
17. As 8 result, between June 1989 and early 1991,
6
Hamilton ~aft~ntered into new customer contracts with clients
7
whose aggregate annual payroll tax lia~llity exceeded $1
8
billion] Each contract provided that Hamilton Taft would pay
9
the client's payroll taxes when they---were due prov-ided certain
10
conditions were met.
11
\18. As Armstrong and Fowles knew, these contracts
12 L
were fFaudulently induced, because Armstrong had already begun
13
to divert funds needed for taxes and:~e:~ad no intention of
14
paying all the clients' taxes vhen the~ vere due~ More~ver, as
15
time passed and the capital deficit of Hamilton Taft
16
dramatically increased, Armstrong and Fowles knew that it would
17
be impossible to pay all the taxes Hamilton Taft was
18
responsible for paying. By t~e time the trustee in bankruptcy
19
was appointed, the overdue payroll tax liability was
20
approximately $91 million, of which over half was for clients
21
who signed contracts after Armstrong's acquisition of Hamilton
22
Taft. Hamilton Taft had only approximately $5 million to pay
23
these taxes.
24
II
25

26 I N DIe T MEN T
(Armstrong, Fowles) 7

000007
-- r .

1
The Coyer-yp
2
19. It was also part of the scheme to fraudulently
3
conceal the diversions, the systematic holding back of tax
4
payments, the magnitude of the resulting penalties, and
5
Hamilton Taft's ever-increasing dependence on recently received
6
funds for taxes to pay the taxes of clients whose taxes had
7
been held back earlier. This concealment enabled Hamilton Taft
8
to continue to' receive funds from its clients, to avoid massive
9
cancellat ions of its contracts, and- to preserve the opportuni ty
10
for new business.
11
False'Tax Returns are-Filed
12
20. In the third quarter of 1989, when approximately
13
$25.3 million in f~deral payroll taxes were not paid, Armstrong
14
and Fowles approved the filing of approximately one hundred
15
false Employer's Quarterly Tax Returns, Forms 941, for the
16
calendar quarter ending September 30, 1989. Each return
17 0

falsely stated that all the taxes for the quarter" had been
lB-
paid. The- clients who receiv~d these returns were thereby
19
falsely led to believe that all their taxes had been paid.
20
Later, when the IRS discovered the shortage and notified the
21
clients and Hamilton Taft, the clients who inquired were again
22
deceived when Hamilton Taft employees, at Armstrong and Fowles'
23
direction, falsely stated that the reason for the non-payments
24
was a temporary problem with Hamilton Taft's computer software
25

26 I N DIe T MEN T
(Armstrong & Fowles) 8

000008
1
or was due to 8 "banking problem." _
2
Ibe Cover-up Method Changes
3'- 21. Beginning in the first quarter of 1990,
4
Armstrong directed the systematic holding back of taxes early
5
in a quarter, intending that the taKes would be paid around the
6
time the employer quarterl~ tax ~eturns were due to be filed
7
several months later. After the end of each quarter, when the
S
-tax return filing'dat~ was near, the unpaid taKes were paid
9
wi th funds
.
rece 1ved from othe r cl len ts----whose own taxes we re
.
10
about to be d4e. Another, larger round of holding back taxes
11·
D ovas then ~ecessary. By choosing to pay past due taxes instead
12
. of currently
... due ta~es, Armstrong was able to delay,' for a much
.. ·.13 .
_... ~ ... . .longer time,a.dJscov~ry by the clients that their taxes had been
~ r4~· ..;.. ~ .~ ~:,I' .' • . ;. • . a

.j',r/.. ~· -:
···1~'·
"Da ~ ·la te~: -:-~Af
~.~'.. '. .
the "same . time, he was able to cre a te the false
.' .
.~. .' ·i~dression that ·Hamilton Taftls bu'siness was running smoothly.
:.'. .1).6. . '
'2 • .
I In' fact,. Hamilton Taft was 'insolvent and heading toward
i7, '·0

collapse. MOreover, by choosing to pay past due taxes instead


18
of currently due ta~es, Arms~rong increased Hamilton Taft '.s
19 co
,penalty liability beca~se the failure to deposit penalty on the
20
currently due taxes would be f rve percent t. while the f'l ve per:-
2~
cent failure to deposit penalty on the overdue taxes had
·22
already accrued and the only additional penalty would be the
·23
failure to· pay pen~lty of one-half percent each month the taxes
24
remained unpaid.,
25,
\.
·26 I N D-I C THE N T
(Armstrong & Fowles) 9

000009· ~.'
1
Selected Clients' Taxes L~re Not Held Back
2
22. Some of Hamilton Taft's clients had contracts
3
that required Hamilton Taft to verify each deposit of federal
4 0

taxes during a quarter. To ensure the success of the cover-up,


5 ~
Armstrong and Fowles directed that the taxes 'of these clients
6 " - . ,~
not be held back. The remaining clients would ~eceive notic~s
.7
of late payments (typically, about six months after they had
8
transferred funds to Hamilton Taft) ~ but Ha~i;to~,:,Tart"'JouC'P":.-
9 .~ ~ .. ~.'=' ..-_.. ,I": .-";:. ....:_ _.'
pay the late penalties and. i~ wou,ld appear to '~he' cli~~O~Q~. ,'".:,:'
10 .. ,' . ,.,'. ~ ., •... :'·...0 ~=' ,
the late payment was an isolated, innocent "pc~u~rence~,.':' ... ?f"
11 .. . - '. .: . ~' ~ P'~;' .:: ~_ .,.",: ..~
Moreover, as Armstrong and Fowles knew, Hamilton Tafte~mploYe;~ Q
12
who responded to inquires did not know the re~so~~o~ t~ i~e , ..
13 '. t-·..
penalties and could only give misleading responses., ~.a

14 :.:.'''' ::.:.,.f!' ",.;


ArmstrODQ Stonewalls' C). _ ~...
.' .,
15 <I .....

23.
Finally, in early March 1991, when a"Hamllecm'_-',oI_'"' "
16 '~:':.~ ~:=:.~~.:.. .... -" 'oi": ~-~:. . ~'Q .-
Taft employee notified some of the clients of th'e:'- s-ys tema " .
t -ri:7~
. "
'jlo'
, ~
-
~

17
diversion of funds and the non-payment of taxes, Armstrong .,
18
falsely 'represented' tq many <:...1 ients that th~ allegaEions were
19
false and that taxes. had been pa id la te-·-ohly' oCQas Lonally.' ,
20 .. D
Armstrong also attempte~ to disseminate this false account·
21
through the media.
22
24. The language contained' iil paragrap~sQ.,8 - i3 is'
23
incorporated by reference in Counts One through T~enty-One .'
24

25

26

" .. .
-
':-
:.:~'.,
\ ....
..... '.. '-" ..
:-.--:
..
' ~-
~
:'

:J
"~.
.' •
~ ,.

.-. . . , '. D.0'0'0 l<l..- ':~_.~ .


~ ~, ::cr.;' :.:'.~,.:-";' ,:, :. :~.[. ':
.
... .•.• _.
"
, 0 '.' ... - :
1
COUNTS RELATING TO THE PAYRQL~ TAX SERVICE PROPOSALS
2
COUNT ONE: (18 u. S •C. §§ 2314, 2)
3
The Grand Jury charges that:
4
On or about September 27, 1989, in the Northern
-_.,~_, .~-
5
_ _ _ _ . - - -_ o' -. -

District of California and elsewhere 4


6
CONNIE C. ARMSTRONG, JR., and
7 RICHARD A. FOWLES,
8 defendant herein, haVing devised a~d intending-to devise a
9 scheme and artifice to defraud and to obtain money by means of
10 false and fraudulent pretenses, representations and promises,
11 did knowingly and for the purpose of executing the scheme,
12 cause and induce representatives of Commercial Credit Group,
13 Inc. to travel in interstate commerce from Baltimore, MO, to
14 San Francisco, CA,.for a meeting with Hamilton Taft
15 representatives concerning Hamilton Taftls proposal to provide
16 payroll tax services to Commercial Credit.
17 COUNT TWQ: (18 U.S.C. § 2314, 2)

18 The" Grand Jury further charges that:


19 On or about April 26, 1990, in the Northern District
. r---- '-~---" .. ,,""
20 of California and elsewhere,

21 CONNIE C. ARMSTRONG, JR. and


RICHARD A. FOWLES,
22
defendants herein, having devised and intending to devise a
23
scheme and artifice to defraud and to obtain money by means of
24
.false and fraudulent_pretenses, representations and promise~,
'"'~ - 25

26
..
.- ~- :i-: . . - • .1 _ ._

.- 000011
1
did knowingly and for the purpose ~f-executing the scheme,
2

3
cause and induce representatives of R. R. Donnelley & Sons
"""'-- ---~- _.- -- .... _.,

Company to travel in interstate commerce from Chicago, IL, to


4
San Francisco, CA, for a meeting with Hamilton Taft
5
representatives concerning Hamilton Taft's proposal to provide
6
payroll tax services -to R. R. Donnelley.-
7
COUNT THREE: (18 U.S.C. § 2314)
8
The Grand Jury further charges that:
9

10
-_.--
On or about June 6, 1990,
__ . . -.
,.
in the Northern District of
California and elsewhere,
11
CONNIE C. ARMSTRONG, JR.,
12
defendant herein, having devised and intending to devise a
13
scheme and artifice to defraud and to obtain money by means of
14
false and fraudulent pretense~, representations and promises,
15
did knowingly and for the purpose of executing the scheme,
16
cause and induce representatives of Scott Pa~r Company to
17 ---- ---- - .-. . .
travel in interstate commerce from Philadelphia, PA, to San
18.
Francisco, CA, for a meeting ~ith Hamilton Taft representatives
19
concerning Hamilton Taft's proposal to provide payroll tax
20
services to Scott Paper Company.
21
II
22
II
23
II
24
II
25
26 .'I . "N-- D I e T ME· N T
(Armstrong & Fowles) 12

000012
1
COUNTS RELATING TO TAX SERVICE AGREEMENTS
2
COUNT FOUR: (18 U.S.C. § 1343, 2)
3
The Grand Jury further charges that:
4
On or about December 5, 1989, in the Northern
5
District of California, and elsewhere,
6
CONNIE C. ARMSTRONG, JR. and
7 RICHARD A. FOWLES,
8 defendants herein: for the purpose of executing the scheme to
9 defraud and to obtain money by means of false and fraudulent
10 pretenses, representations, and promises, and attempting to do
11 so, did knowingly cause to be transmitted by means of wire

12 communication in interstate commerce a facsimile copy of a


13 signed Tax Service Agreement from Sunbelt Beverage in

14 Lutherville, MD, to Hamilton Taft in San Francisco, CA.


15 COUNT FIYE: (18 U.S .. C. § 1343,2)

The Grand Jury further.charges that:

.17 On or ~bout December 15, 1989, in the Northern


18 District of California, and elsewhere,
19 CONNIE C. ARMSTRONG, JR. and
RICHARD A. FOWLES,
20
defendants herein, for the purpose of executing the scheme to
21
defraud and to obtain money by means of false and fraudulent
22
pretenses, representations, and promises, and attempting to do
23
so, did knowingly cause to be transmitted by means of wire
24
communication in interstate commerce a facsimile copy of a
25

26 I N D I C T MEN T
(Armstrong & Fovles) 13

00001& ·
1
signed Tax Service Agreement from the Kendall Company in
2
Boston, MA, to Hamilton Taft in San Francisco, CA.
3
COUNT SIX: (18 U.S.C. ~ 1343)
4
The Grand Jury charges that:
5
On or about September 18, 1990, in the Northern
6
District of California, and elsewhere,
7
CONNIE C. ARMSTRONG, JR.,
8
defendant herein, for the purpose of executing the scheme to
9
defraud and to obtain money by means of false and fraudulent
10
pretenses, representations, and promises, and attempting to do
11
so, did knowingly cause to be transmitted by means of wire
12
communication in interstate commerce a facsimile copy of a
13
signed Tax Service Agreement fr9m Jim Beam Brands Company and
14
JBB Spirits Inc. in Deerfield, IL, to Hamilton Taft in San
15 o
Francisco, CA. " ...
• Q. o
16 .- ,. o

17
COUNTS
. RELATIN6
.
..
.
TO THE DIYIRSION' Of FUNDS NEEPED FOR TAXES -
.
(18 U.S.C. §, 1343,. 2» • Do·

18
The Grand Jury futtber charges that:
19

20 --- "--._-, ._----


On or about September 1, 1989, in the Northern
- .
District of California and elsewhere,
21
CONNIE C. ARMSTRONG, JR., AND
22 RICHARD A. FOWLES,
23 defendant herein, for the purpose of executing the scheme to
24 defraud and to obtain money by false and fraudulent- pretenses,
.. ~.

25 representations, and promises, and attempting to do so, did


26 I N D I C T MEN T ...
(Armstrong' Fowles) 14

000014
1
knowingly cause to be transmitted ~y_means of wire
2
communication 1n interstate commerce from a Hamilton Taft Smith
3
Barney account in Newport Beach, CA, to State street Bank &
4
Trust Company, Boston, MA, f/b/o Dresdner Enterprises, Inc., a
5
money wire transfer in the amount of $1 million.
6 -------
QQUNT EIGHT: (18 U.S.C. §§ 1343, 2)
7
The Grand Jury further charges that:
8
On or about November 14, 1989, in the Northern
9
District of California and elsewhere,
10
CONNIE C. ARMSTRONG, JR. and
11 RICHARD A. FOWLES,
12 defendants herein, for the purpose of executing the scheme to
13 defraud and to obtain money by false and fraudulent pretenses,
14 representations, and promises, and attempting to do so, did
15 knowingly cause to be transmitted by means of wire
16 communication in interstate commerce from a Hamilton Taft"Bank
17 of America account in San Francisco, CA, to state street Bank
16 and Trust Company, Boston, MA, f/b/a Dresdner Enterprises,
19 Inc., a money ~ire transfer i; the amount of $1.1 million.
20 II
21 II
22 II
23 II
24 II
25 II
26 I N Die THE N T
(Armstrong' Fowles) 15

000015
1
CQUNT NINE: (18 U.S.C. ~§ 1343, 2L_
2
The Grand Jury further charges that:
3
Qn or about February 8, 1990, in the Northern
4
District of California and elsewhere,
5
CQNNIE C. ARMSTRONG, JR. and
6 RICHARD A. FQWLES,

7 defendants herein, for the purpose of executing the scheme to

8 defraud and to obtain money by false and fraudulent pretenses,

9 representations, and promises, and attempting to do so, did

10 knowingly cause to be transmitted by means of wire

11 communication in interstate commerce from a Hamilton Taft Smith

12 Barney account in Newport Beach, CA, to State Street Bank &

13 Trust Company, Boston, MA, flblo Winthrop Realty Company, a


--- ...... _--_.
----------~_.-

14 money wire transfer in the amount of $9.8


. million
._ -_.0 .__._ •
15 COUNT TEN: (18 U.S.C. §§ 1343, 2)

16 The Grand Jury further charges that:

17 On or about May 2, 1990, in the Northern District of

IS California and elsewhere,

19 -
CONNIE C. ARMSTRONG, JR. and
RICHARD A. FOWLES,
20
defendants herein, for the purpose of executing the scheme to
21
defraud and to obtain money by false and fraudulent pretenses,
22
representations, and promises, and attempting to do so, did
23
'~nowihgly cause to be transmitted by means of wire

-comInunicat1on ri'n interstate commerce from a Hamilton Taft ~ank


25

26
.
I N D I C T MEN T
(Armstrong & Fowles) 16

OQOOl6
L1 c'
1
of America account in San Francisc~~_CA, to a Dresdner
2
Petroleum, Inc., Bank One account in Dallas, TX, a money wire
3
transfer in the amount of $4 million.
4
COUNT ELEVEN: (18 U.S.C. 0 1343)
5
The Grand Jury further charges that:
6
On or about September 4, 1990, 1n the Northern
7
District of California and elsewhere,
8
CONNIE C. ARMSTRONG, JR.,
9
defendant herein, for the purpose of executing the scheme to
10
defraud and to obtain money by false and fraudulent pretenses,
11
~epresenta~ions, and promises, and attempting to do so, did
12
knowingly cause to be transmitted by means of wire
13
communication in interstate commerce from a Hamilton Taft Bank
14
of America account in San Francisco, CA, to First National Bank
15
of Chicago, Chicago, Illinois, [Ib/o Winthrop Realty ~ompany, a
16
money wire transfer in the amount of $2 million.
17
COUNT TWELVE: (18 U.S.C. § 1343)
18 ..
The Grand Jury furtper charges that:
19
On or about September 10, 1990, in the Northern
20
District of California and elsewhere,
21
CONNIE C. ARMSTRONG, JR.,
22
defendant herein, for the purpose of executing the scheme to
23
defraud and to obtain money by false and fraudulent pretenses,
24
repre~entations, and promises, and attempting to do so, did~ • I -: .~.

25
. ....
26 I N D I C T MEN T
(Armstrong & Fowles) 17

000017
c. I

1
knowingly cause to be transmitted ~y_means of wire
2
communication in interstate commerce from a Hamilton Taft
3
Security Pacific account in San Francisco, CA, to a Remington
4
Companies, Inc. Bank One account in Dallas, TX, a money wire
5
transfer in the amount of $1.7 million.
6
COUNT THIRTEEN: (18 U.S.C. § 1343)
7
The Grand Jury further charges that:
8
On or about September 12, 1990, in the Northern
9
District of California and elsewhere,
10
CONNIE C. ARMSTRONG, JR.,
11
4efendant herein, for the purpose of executing the scheme to
12
defraud and to obtain money by false and fraudulent pretenses,
13
representations, and promises, and attempting to do so, did
14
knowingly cause to be transmitted by means of wire
15
communication in interstate commerce from a Hamilton Taft
16
Security Paclflc account in San Francisco, C~, to a Remington
17
Companies Inc. Bank One account in Dallas, TX, a money wire
18
transfer ·in the amount of $3.) million.
19
COUNT FQURTEEN: (18 U.S.C. § 1343)
20
The Grand Jury further charges that:
21
On or about December 5, 1990, in the Northern
22
District of California and elsewhere,
o .
23
CONNIE C. ARMSTRONG, JR.,
24
defendant herein, for the purpose of exec~ting the scheme to
25

26 I N DIe T MEN T
(Armstrong ~ Fowles) 18

O~0018
1
defraud and to obtain money by false and fraudulent pretenses,
2
representations, and promises, and attempting to do so, did
3
knowingly cause to be transmitted by means of wire
-4
communication 1n interstate commerce from a Hamilton Taft
5
Security Pacific account in San Francisco, CA, to a
6
Knightsbridge Treasury Bank One account in Dallas, TX, a money
7
wire transfer in the amount of $1.1 million.
8
COUNTS RELATING TO THE PAYMENT OF LATE TAXES
9 WITH FUNDS RECEIVED fOR CURRENTLY DUE TAXES
10 COUNT FIFTEEN (18 U.S.C. § 2314, 2 )-- JS-R Do4Z7JJ..r~

11 The Grand Jury further charges that:

12 On or about April 12, 1990, in the Northern District of


13 California, and elsewhere,
14 CONNIE C. ARMSTRONG, JR., and
RICHARD A. FOWLES,
15
defendants herein, did cause to be transported in interstate
16
commerce from Hami~ton Taft in San Francisco, CA, to the North
17
Carolina Nat10~al Bank in Ashville, NC, securities having an
18
aggregate value of approxlmat~ly $19.4 millon, kno~ing that the
19
securities yere traceable to funds that were wrongfully
20
converted and taken by fraud.
21
/1
22
/1
23
/1
24
1/
25 :-- :".•. ·-u ..

26 I N DIe T H tNT
(Armstrong' Fowles) 19

0000]9
- ,
L

1
COUNT SIXTEEN: (18 U.S.C. § 2314)
2
The Grand Jury further charges that:
3
On or about August 1, 1990, 1n the Northern District of
4
California, and elsewhere,
5
CONNIE C. ARMSTRONG, JR.,
6
defendant herein, did cause to be transported in interstate
7
commerce from Hamilton Taft 1n San Francisco, CA, to the North
8
Carolina National Bank in Ashville, NC, securities having an
9
aggregate value of approximately $37.8 ml111on,~knowing that
10
the securities were traceable to funds that were wrongfully
11
~onverted and taken by. fraud.
12
COUNT SEVENTEEN: (18 U.S.C. § 2314)
13
The Grand Jury further charges that:
14
On or about November 1, 1990, in the Northern District of
15
California, and elsewhere,
16
CONNIE C. ARMSTRONG, JR.,
17
defendant herein, did cause to be transported in interstate
18
commerce from Hamilton Taft in San Francisco, CA, to the North
19
Carolina National Bank in Ashville, NC, securities having an
20
aggregate value of approximately $45.0 million, knowing .that
21
the securities were traceable to funds that were wrongfully
22
converted and taken by fraud.
23
1/
1/

26 1 N DIe T MEN T
(Armstrong & Fowles) 20

000020
.-' c.·

1
COUNT EIGHTEEN: (18 U.S.C. ~ 23 14 1__
2
The Grand Jury further charges that:
3
On or about February I, 1991, in the Northern District of
4
California, and elsewhere,
5
CONNIE C. ARMSTRONG,
6
defendant herein, did cause to be transported in interstate
7
commerce from Hamilton Taft in San Francisco, CA, to the North
8
Carolina National Bank in Ashville, Ne, securities having an
9
aggregate value of approximately $57.0 million, knowing that
10
the securities were traceable to funds that were wrongfully
11
converted and taken by fraud.
12
COUNTS RELATING TO THE DENIAL OF SOLOPOFF'S ALLEGATIONS
13
COUNT NINETEEN: (18 U.S.C. § 1343)
14
The Grand Jury further charges that:
15
On or about March 12, 1991, in the Northern District
16
of California,
17
CONNIE C. ARMSTRONG, JR.,
18
defendant here~n, for the purpose of executing the scheme to
19
defraud and to obtain money by false and fraudulent pretenses,
20
representations, and promises, and attempting to do so, did
21
knowingly cause to be transmitted by means of wire
22
communication in interstate commerce fro~ San Francisco, CA, to
23
Advo System Inc., Windsor, CT, a facs imile let~eI'_ dated· March
24
12, 1991, signed "Connie C. Armstrong, Jr."
25

26 I N DIe T H:E N T
(Armstrong & Fowles) 21

000021
-
1
COUNT TWENTY: (18 U.S.C. § 1343)
2
The Grand Jury further charges that:
3
On or about March 12, 1991, in the Northern District
4
of California,
5
CONNIE C. ARMSTRONG, JR.,
6
defendant herein, for the purpose of executing the scheme to
7
defraud and to obtain money by false and fraudulent pretenses,
B
representations, and promises, and attempting to do so, did
9
knowingly cause to be transmitted by means of wire
10
communication in interstate commerce from San Francisco, CA, to
11
Federal Express Corporation, Memphis, TN, a facslml~e ~etter
12
dated March 12, 1991, signed "Connie C. Armstrong, Jr."
13
COUNT TWENTY-ONE: (18 U.S.C. § 1343)
14
The Grand Jury further charges that:
15
On or about March 12, 1991, in the Northern District
16
of California,
17
CONNIE C. ARMSTRONG, JR.,
18
defendant herein, for the purpose of executing the scheme to
19
defraud and to obtain money by false and fraudulent pretenses,
20
representations, and promises, and attempting to do so, did
21
II
22
II
23
II
24
II -
25

26 I N DIe T MEN T
(Armstrong & Fowles) 22

000022
1
knowingly cause to be transmitted Qy_means of wire
2
communication in interstate commerce from San Francisco,
3
Scott Paper Company, Philadelphia, PA, a facsimile letter
4
c March 12, 1991, signed "Connie C. Armstrong, Jr."
5
DATED: A TRUE BILL.
6
rHE DEf
7
----,: pleac
:--: 8 FOREPERSON
'0
\
pleat
whic
9
7\ was
~ aftE 10
Title 8L 11
18U.S. 12 Approved as to Form: tv1V
AUSA: LUCKEL
13
18 U.~
14

15
16

17
to th l
18
19

20

21
)e
22
Of
23

24

25

26 I N DIe THE N T
(Armstrong & Fowles) 23
-- PAYROLL TAX SERVrC~
This Aoreement is made and entered into as of the Twelfth day of October
1983 by and between S ta:1(ord University Hospital, a California corpora tion,
and Hamilton Taft [. Company, ["HAMILTON TAFT"). 567 Golden Gate
Avenue, San Francisco. California 9t:l02. a California corporation.

WH E:REAS, Stanford U niversi ty Hos;::li,al desi res to engage Hamilton Ta ft to


perform payrOll ~ax services with respect to employees of Stanford Univer-sity
and Hamilton Taft desires to ;.Jerform such services;

NOW, TH =R. :::;:0 RE. in considera tion of the mutual as:-r~:ments set forth below,
the parties agree as follows:

DUTIES OF HAf.IILiON TAFT: Durins the term of this Agree"ment, Hamilton


Taft will (I) deposit requirec Federal. State and local withholding tax payments
for Stanrore University Hos;Jital in the appropriate amounts (utili:ing IRS "!;;afe
haven" provisions) and in a timely and proper manner (including payment by
check. where allowed) with-the tax authorities on 01" before the payment dead-
lines; (1) Kamilton T2:-t will ;:>repare, transmit and file required federal, state
and local payrOll tax forms and ie;5ons. These duties to be 2 condition pre~e­
dent to "DUTI:S OF STANi=ORD UNiV:::R.SITY HOSPITAL" (reimbursement of
Harr.ilton Taft by Stanford Universi~y Hospital).

DUTIES Or STANFORD UN(VSRSI7Y HOSPITAL: During the term of this A9r-ee-


ment, Si.anford University nospital will (1) deliver to Hamilton Taft such documents
(inc!uc:!ins ac::urate autol7\2ted payroll tax summary information together with its
payroll tax registe;-s) 25 are necessary to enable Hamilton Taft to earlY out its
duties under the ~e:-ms of this Agreement; {2) reimburse ~amiJton Taft. via
Hamilton Taft'S De,::lositor-y Transfer Check no sooner and no later than 2
calencar days of" the r.I.T .. F.I.C_;.. .. and State tax ce;:>ository due dates,
in the amour.t of 1 ()a~ of fede ....al anc stale liabilities. and (j) reim~urse
Hamilton Taf •. at Sank of America's ove~dra(t or uncolre-:ted funds borrowing
rate applied to r-:amilton Taf, 2S a result of an improper failure by S,anroid
University Hospital to reimourse Hamilton Taft in a timely manner for the tax
deposits made or. 5 tar. ford Universi~y Hospital's behalf.

COMPENSATI8~ OF HAMILTON TAi="T: Compensation which Hamilton Taft


shall receive for performance of the Guties des~ribed he~ein is that Hamilton
Taft may retain whatever benefitS may ~e derived from the temporary use of
any funes not collected immediately '::)y the taxing aut.~odtjes upon Hamilton
Taft's deposit of ~2yment on Stanfor:: Uni .... ersity Hos;li~al's ~ehalf on or before
the payment deac:ines.

INDEMNIF1CAT10N: Hamilton Taft shall indemnify. defend and hold Stanford


UniverSity Hosortal harmless from and against any and all expenses. damages,
claims, suits. ac:ions. juGgi.1enrs ane costs, includins attorney's fees. arising
out of Hamilton Taft'S failure to perform the duties describ~ herein in a
timely a"nd proper ma nner.

FEES: Hamilton Taft ..... ill charge Stanforc Univ~rsity Hospital on the las,
business cay of each month via De~ository Transfer check. 550.DO for eac.'1
Federal I.D. and SiO.DO per month (or each State in excess of one servicec.
Initiation fees will be a one ~jme charge of SiOa.OO pe:- federal t.D.
e· e·
TERM AND TERJ\\INATION: The term of this Agreement shall begin on
oc:tOber 12. 1983 and continue indefinitely until terminated by either party
as provided below. Stanford University Hospital may terminate this Agreement
immediately if (1) H3millon Taft fails to perform any of its obligations under the
terms of this Agreement; (2) a voluntary or involuntary petition for relief of
debtors or creditors is filed by or against Hamilton Taft; 0 , (31 Hamilton Taft
enters into or effe-.:ts any plan or agreement with its creditors. Either 5 tanford
University Hospital or Hamilton Taft may terminate this Agreement \llIithout cause
Upon 30 days' written notice.

FIDELlTY BOND: In order to protect Stanford University Hospital against


dishonesty or fraud by employees of Hamilton Taft, Hamilton Taft shall main-
tain during the term of this Ag reement one or more fidelity bonds in ag9rel:la te
amounts equal to S2Q million. As new customers are acquired by Hamilton Tart.
the amount of s2id fidelity bond shall be incre2sec so that the percentage of
customer deposits protectec by fidelity bonds remains adequate and constant,
Stanford University Hospital shall be entitled to 60 daysl written notice from the
bonding companies of any cancellation of such fidelity bonds.

MISCELLANEOUS: This agreement constitutes the entire understanding between


Stanford Universi:y Hospital and Hamilton Taft and cannot be modified except·
by an agreement in writing signed by the parties. Upon execution of this
Ag reemen t. this Ag reement sha II supersede all prior negotiations. understandings
and agreements. whether ora! or written. This Agreement may not be delegated
to persons who 21-e not em;:iloyees of Hamilton Taft. Any notice required to
be given shall be in writing. postage ~repaid. by certified m2ir.

IN WITNESS WHERSOF, ,he ;::;arties herein have caused this Agreement to ~e


executed on the cate first 2bove written.

ACCSPT=:O""3Y SiANFORD ACC::?TcD S Y HAMILTON TAFT


UNIVE}'!\'mp'TAL
. -..,/
(/LZ-Lo~~'---·J
/ '-
...:..:.,. .... /1/..;"",,--,-
By: 8'1': - ..
" ... /. /~. .-t,.",. .. -- .- '" -
/ '-'

Title: Qi r,=c~:::lr 07 i="inan::e Ti tIe:


---'=--=-':~'--'--':""""'~------
......
P . -.". ~{'
Hay 27, 1982 '. : . I 'I:
0'

r .,' r( .-:

"Ii \~. .1
, ,
'1 r i.
Hamilton Taft & Company (
}~ "
I'.
.
1255 Post street
San Francisco, CA 94109

Re: Payroll Tax Service Agreement

Gentlemen and Ladies:

This letter is to set out the terms of the asreement between

Hamil ton T2.ft £. ComElany (hereinafter referred to as "Hamil ton Ta ft"


or "Comp2ny") and the Board of Trustees of the Le12nd Stanford
Junior Unive~5ity (Eereinafter referred to as nUniversityn or
.. Stanford") .

1. Notification: Ha~ilton Taft shall notify Stanford of all


tax deposit c~e dates relevant hereuncer by five (5) calenda= days

before eac~ cue cater a~c shall noti=~ Stanforc of any aeficie~cy

(24) hours a=~er the ~ate of deposit.

2. Services to be orovided bv Ramilton Taft:


(A) E~iltcn Ta':-:' shall deposit for Stan:::orc wit::' the reletJ·a!':t.

tax authorities 2~ounts e~ual to all Federal and California taxes

required ta be withhelc from the Stanford payroll, including but

not by way of limitation s~ate and federal income t2Xes, Federal

Insu=ance Cantri~utions Act (FICA) anc Fece~al Una~91oyment Tax

Act (FU~A) taxes. Hamilton T2ft shall make these deposits in ti~e

to meet Gove=~~ental deadlines for ceposits.

{B} F.2!'ri.ilton Taf-:- sh21l provice writt~;. oroo: of all deposi=-s

EXHIBIT A
(' Hamilton Taft & Co.
May 27, 1982
Page 2.

,
not later than ten (10) working days afte~ the due date for each

deposit.

3. Source of Funds: Deposits by Hamilton Taft uncer this

agreement shall be made from Hamilton Taft's bank account Number

0331-02641 at the main office of Bank of America, 345 Montgomery

Street, San Francisco, California '94104.

4. Actions bv Stanforc:

Stanford will:

(A) Dete~ne amou~ts to be deposited for Fede=al and

state withholding purposes;

(E) Advise E~ilton Taft of suc~ ~~ounts, ve=bally no

late~ tha~ one (1) day a=ter paydate and/or, in


.....
WI':l, \..!.nc; , not

less t~an two (2) days prior to each tax deposit due date,

us ins forms sirnila= or identical to Exhibits A and a, at~ac~ec

he~eto and by ~~is reference incorporated herein.

(e) Deposit amounts sufficient for such deposits to t~e

E~~lton Taft bank account described above in a map~e~ tirnec

to a~=ive by the following dates:

(i) For Fede=al Deuosits: not late~ than ~~=ee (3)

banking days after the due ~atei

(ii) ?or Caliior~ia Deposits: not late= t~an one (1)

banking C2Y a£te= the due date.

loose
Hamilton Taft & Co.
May 27, 1982
Page 3.

....
5. Incemnitv: Hamilton Taft agrees to hold harmless, indemni~y

and defend Stanford against any and all liability to any pa~ty for

any loss, penalty, damage, liability, expense, claim or demand of a~v

character, arising out of any breach of duty by H~~ilton Taft unce~

this agreement.

6. Security Deposit: As security for its performance hereunde~

Hamilton Taft shall execute concurrently here~ith the Power of Attor~ey

over Specified certificate of Deposit attached hereto and by this

reference made a part hereof.

7. Fees: As the sole fees for Hamilton Taft's service hereunder,


\ .

stanforc grants herebv to Hamilton Taft ~~e use and benefit of temporary

disposition of funes cepositec to the account of Hamilton Taft as

provided hereunder.

8~ Deliverv Ccsts: Each party hereto shall pay at the point

of origin the costs of mailing or other .communications or doc~ents

ori;inatin~ ~ith such ~arty.

9. Te=:n: This agreement shall continue in e=fect until te~i~ate~

by eit~er party upon thi~~y (30) days notice of termination celivere~

to the ot~er pa~ty, or te~inated by mutual asre~ent between ~~e parties.

10. Notices: Notices, mail, and inquiries hereunder shall be

di~ec~ec to each ?arty at the address and telepho~e number listec on

Sucj accresses anc telephone numbers may be chanqec

by either party u?on writte~ notice of suc~ c~2~~e celiverec to t~e


Hamilton Taft & Co.
May 27, 1982
Page 4.

Executed: ,

Hamilton Taft & CQrnpanv The Board of Trustees of


1255 Post St=eet . - The Leland Stanford Junior Unive=si~:
San Francisco, CA 94109 102 Encina Hall
Tel.: (415) 885-2929 Stanford, CA 94305
Tel.: (408)~97-J953

~
/
By: By: ~--:
7 .
Its Its J-x." ~ kr ~ or.d ~
--"""---=='---=-...:=::::......=----'--'---
at __
---.,c.:.~=r.--:::::..:......:::.......--
at Stanford

Date: Da te: June 29. 1982


----..<:...._----
(

A.~.ENDMENl TO PAYROLL T::'X S::::tIl!C~ AG~E=:~ENT
\

r
This Amenc:ilent is me-de anc ent'::!re~ into this 7 de.y of

, 1983, Eoe the purpose oE modifying the Payroll


Tax Serv.ice Agreement dated 29 June 1982 between The Board of
Trustees of The Le12nd Stanford Jun.ior University ("STANFORD"),

102 E~cin2 Hall, Palo Alto, California 94305, and Hamilton Taft
a no Comp2 ny ("Efu'1ILTON TAFT"}, -567 Golden Gate Avenue, Sa'l

Francisco, Califoenia 94.102, a ~alifornia corporation.

The change shall be mace i~ Se=tion 4, of ACTIONS BY


STANFORD, p2ragra~h C (i), which shall be amended to read in
its entir:ety

(iil "For ?ede!:'al Deposits: Not later than. 2 banking


days after t~e due cate."

Exce?t for tbe change sat out above, t~e June 29. 1982
Ag reeOilent conti.nues in ef£e~t in all l" '--
... .:l te!: iIlS •

HAMILTON TA:T & COMP.~Y THE BOARD OF TRUSTEES OF TSE


LELAND ST';~~R crNIVL:>.5IT"'::

By ;;
~~
Title c,-I rc:rr~
-------------~

EXHIBIT 8

Tni;; Arr.enc;:-,e:1l is li'.ac.e and. e~t=::'e-:' L:to thi;: It!": day cf
Febt"uaC'y, 196L, for the purpose of IT.ocifyi'ig the Payr;:;ll Tax Se:--
vit:e A,g.~emenl dated 29 June 1962 between the Boar= of Trustees of
the Leland Stanford Junk. Uni"Je:-sily ("STANFORD"), 102 Er-.ci.:I2,
Hall, Pal"Q Alto, CaliloC"ni.:. 9l.,JOS, and Har.tiiton Taft and Company
("HA~'lILl'ON TAFT"), 567 Golden Gale Avenue, San FC"anci:=co, Ca1i-
forni.: 9L102, a CaliroC":11'1 Corporalic:'1..

The change sha 11 be made i-. 5ecti. n I. of Aclicns by Stan-


ford, Parag.aph C (i a: ii) ",'hi..:h shall be Cll7iended to read i.~ il::
entirely

"For Feder21 Deoosits;


, Ncr late:- th.:Jn l·...·o (2) banki.'g
days aIle!." due dete.

Ciil "For CalifaC":'1.iCl Deocsits: Net lale!" tha:l t\lle (2) ~2.nk-

i:1g days a her due date."

Exceot far the chenge set above, the June 29. 1::82 Ag::-ee;.:ent
canli.;,,\ues i" effec.t i~~ a II its te~~s.

HA~:lLTaN TAFl & CO~(PA~IY TH~ SOARD OF TRU5TE~S or T~~

LE:LA~:O STANF'JRD JUiHCR. U~nVE:i.=IT,{

7
~
8Y_-r~=--------,_....c;. _

Tille /~~-
---------------

RECEIVED
AU G3C1984
vP. &r.t"lnf.rii I Cau nsel :: ... .
,-

EXHIBIT C
,-, .

(

i'?S5, fc" t.~e £,U~?05e of mociEyinc; the ?=:!coE !a:< S~nti::e Agr:::ee:-.":,:,,
\
cated 2~ June 1982. '::et·~ee:1 the Board of 'I::us~ees of the lelanc Sl:anfoc-=
Junioc Uni\fe~sity (·STANfOaD"), 102 Encina Hall, Palo Alto, California
9~3DS, a.nd Hamilton Tat:: and Company (·~i.~HL'::GN r;.,;-!"), 567 Cnlden Gcite
Avenue, San ="ancLsco, Califocnia 94102, a Califor~ia Cor?o:ation.

The c~anr;e shall be mace in Section 4 oE Actions by Stanbr=,


?acasra~h C (i & i i l ~hich shall be a~ended to read in its entir:::ety.

(il "For Federal Deoosits: Not. late!: than one (1) banking day afte::-
dt.:e date."

{iil ":-or CalU'or:lia De:losits·: Noe loter than one {ll banking dai'
afte!' due ca~e.·

Exce?t fa r t~e c~a~ge se t above / the June 29, 1982 Age: ee~e!1t
con:~~ues in ef:ec: in all its teems.

'IE.!: Ba~ Q: OE'

L~~AND Sr~~FORD JUNIOR ONIV~~S~~!

9y

Conc:~~lle':"
T'ic.!.e ~~si~~~, E~ilt~ T~~ & C~~tle
-------------

EXHIEIT 0
A..t1ENDMENT TO PA.YROLLTAJ<. SERVICE AG?.EE...~T

.;-1-1
This Arne!lC1nen':. is made anc entered i:lto t.-l,.:'s {I G.ay of I

October, 1985, for the ?ur?0se of modifying the Payroll Tax Ser-

vice Agreement dated 12 October 1983 between S~anford University

Hospital, 300 Paste~= Drive, Stan£o=c, Califo~ia 94305, and

E~lton Taf~ anc Corn?~ny ("~_~~~TON ~AFT"J, 567 Golden Gate Avenue,

San Francisco, Ca1~fornia 94102, a Cali=o=nia CQ~Q=2.tion_

The char.ge s~all be made in "DUTIES OF STANFOP~ ~Iv~P3ITY

HOSPITAL" i::'em '.:wo (2) which shall tJe amenc.ed to reac. in. its entirety

Tr~~s=er C~eck no soo~e= and no :~ter ~~en one calancar

cay of ~:"1e F'.:.T.,.:.I.C.J... , anc. S~at.e tax c.e?osit~=y c12e

it:'es.

£xce?t for t~e c~a!lqe set a~ove, the October 12, 1983 Aq=ee~e~t

continues in ef=ect in all te~s.

3y
=

Title 'T'"~lc
.... _'--- cf)
y

UJ r-'\; l'l~l
_~l!i_l......
- ~- 1'1+=- - ----
~I L
FEOERAL./POWER OF ATTORNEY
AND DECLARATION OF REPRESENTATIVE

.. HOW ALL UE~ gy TP-iESE PA£SENTS;

~..Jllcdd
--~
300 ?as ceur Dri.ve PaLo Alto
~l ......
Ca. t i f 94305
lllgl
(41.5) 497-5864
~

\1\.-.... C&I".., n. . ~ , _ ~~. "'adA, ~ ..-.:I ~ ..w b, II--. ~ . dl:lotS ~ ........ =n5Utl.A ........ ~ l.AHt:z 'EMtL. c
"fAa: H. 'ASV" of "".-zTClft Tm " C-::nooMty. ~Iacs. ~7 ~ C&I.",--. ~ n...cta::o, CIJIlDnaa Ita I..- 4lrII;I '-fuf ~ br ~ ~ ... 11: "'in.
.-.... , . _ ...., ."W 1q • ..-.l /1:) ~ ~ ~ o-QoQ&lt .-..4 _ ' - ao.. Ci'5b1d !:l\twc;Xlr of ~ ~ on t\o:f\aIf at ~~'fW .wrum-c 'No
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tot ~Ill"'oq AolI11'IQnly to ~ aCo::lI...... in IlIe." "., •• n o..:li~led_18 .UClll. Ilftd ..-. \I'- . - . . . ~1«3 ~., '"~ ~ ~ 1.I.rt:lISUIula. II .. ~00d Ir\.W
.-.eft .......... lI4'Cwll'd 0, -..en ~ ... laCl ....... ~ ~lu6lll\.l ~ .. ~ It:1l" U'o4 ... hJn1I"'''...-..o-ct
1G.A.t.L. ~C.Iot"s"''''' ~-w...w.,..-Iot ~ I.&.. ~ D
~ ~ ~ rN ~ "....."a..u 01 .~'. ~ ""'O~'I ~ _ 0I0"b"""'-<1....a lI'IM .:lC1' ... I ...... m<A1 be I1Ie<l WTt.b 1IW ~1Jna OJnoc:!QIf oIl",C'<'I\&l
~ . " Ja ~~ ...-.e-.toad _ U>oo U~.,... and lro • • ,01,...., ...
lad._ ~ 101 ll'loI ...wrn.
01-..... a:I . . . - and ~ l\.Ki.LICy klt '1101 ~I"" pro.
~ Ia ~:a. l40lu 01 It..,....,l'C ,,' ... n:s.

~ utonwy'" ,~ I"'-II~'" ~ l1'4I :MJlnonty 'et


,.-cod. . c.on4ide<ttlal w.1~ --.d lull r><>-er Ie ",,--olll1r -.d ~ _ lU ~:u ~)'foll Lw. rMWn ....
c1..;>Q1IIO'l tOf'1Tl-l. ~rwj ccmC)Vkr c>w:IC>U1 IQI' ,..oj..-ct I....!,.. 10 lee .... Of COU~ ~ .... P-I7...-tt 0.1 ..., .~~ "/lnl..- ~ 1.... 10. ~I ...... t:1I in_.SI, Ie
""..-.:&4• .Iu1/'1<r1I., 14 C' t.:I 1ub£l.N'.... ,A;lC ". PM"),..<'<1 LaNElIEAAfL U lle ,~~~... ~ .&f\.fI/1 1n.:/UOoI. tIO.d ""I J:>a 1l"'1H4'<I kl. I.... ~iOI" oJ con-
............. ~l""i I:" ,'oI1\<lcrp ~ 'e- .la.U3srntnf .r.l\Q ':OIlltCllOn 04 ~ la.... ..-.a U'>4 lo.eQIIio3IO 01 ~q ~L

c.:.o-", elf toe'tJ~ ~r:C1 0'f1'V< •• 'n .... ,0_"'I<;~i"" •• om~5«l \d ,,... f2ao.. ycr«~in ~HdINo' ~ t/'oor &I~ ""'~ JJv>uM1 ~ ~J 10 ... .A.l'IC H.
~AN'" 01 LaNU FE~&L. ~ c-f _ , , . , . . r.llT :u.a Colma=-, Inc. ~ ~ e....te " ' _ So.- F,~. ~ ~ ,a.
" ••c;o-ocr tr.
I... ~,...
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~
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~. . Q~ ~llf' J<i-..=;.:aJl On btI'''''

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ai,,,,,, LU.j,loI.,... Il;8fil, = I ........ m. ....mon,y \.II _1IoQM INA ~ cl A11.... .-yo _ CIctl&I1 0' tr'4

DAYrn"t. s~r ------ CD-ECTOR OF Ft?':,!.,NC:: OECY3ER 27. t984

~""'Q.loIC~~ ......... - - -
~I~

I ~ !l'\&I1 .no ncl r:lII .... ry ~ ~--"'" 01 C1stlM- "on< ~ ~ 1IW IItt"""'" " - - - .s...n.oc.. _ I ... .....", '" T Nu...., ~ c::z.
C\.II¥ 104.::C u ~ t.1. CJ.}l 'aiT ~ ~1"1100'l£ r:o-<l""Q the o'.~ oI.a~,.,. .:..<U1le4 ~~~....n.._ eQOWlls.. ~ ~_ ..,,-
>J"od ~ ....." 1'I"Irl J .,.. ...., ame- ",4 ~:>iftol11Qon 1&l1.1J1'<l ~y __ & ~ ...-ca ~-.

."
~ .... U'''''''.L..~''e.­
--'''''~e- __
4

... 07 Goldaf1 Gal e A.,enue F=rancisco. C.aJltornla 9.( 1Q2 (J'S) B6J·2929
U.S. Department of Justice

Federal Bureau of Investigation

450 Golden Gate Avenue


I.n Reply, PleBse. Refer to San Francisco, CA 94102
PIle No February S, 1991

M'illlhff"!'.,v If j.,,,,! ,o4'S'M/~


I! ,,",DIU#! t/~AJ 1h1tJ'l~c)" ')J7hIJD
Mr. William T. Me Givern
united states Attorney
V161 IVI In/" f,oJ '1 h-j,J t1 ,,,,l),JPr:!t .

Northern District of California


450 Golden Gate Avenue
P.O. Box 36055
San Francisco, California 94102
Attn: Mr. Michael Yamaguchi
Assistant u.s. Attorney
Re: Chip Armstrong, dba
Hamilton Taft and
company
#1 Market "'Plaza,
Spear st~et Tower
San Fr~~isco, Ca 94105
POSIES' eFraud by Wire,
Tax raud
00: San Francisco
7
Dear Mr. Me Givern:
Our office is submitting the following information to
you for a prosecutive opinion as to'whether a violation of
Federal Law has taken place.
The San Francisco Division first became cognizant of
the existence of Hamilton Taft and Company in August of 1988 when
I ~as interviewed at our office. I I was
the co-founder of Hamilton Taft and the other founder was one, -
I I who founded the company in 1979. For your
information, Hamilton Taft is a service company which provides a
b7C tax paying service on behalf of their clients. Hamilton Taft and
Company collects money from their ~us clients and in turn
pays their clients various feder~1, sta~~ and local income
. "1 - ---- 1
1 - Addressee nfl,O \ fJ1::.. Orl --
1 - 196A-2868 rv j \ , '/ ,U
PKM/sgc
(2)

Enclosures

b7C
taxes. Unemployment taxes and other various tax liabilities are
also paid by Hamilton Taft. When a company becomes a client of
Hamilton Taft, it notifies Hamilton of the companies payroll
dates, pertinent payroll information, the state in which the_
company is required to pay taxes and the type of taxes which need
to be paid and on what dates. Hamilton collects monies from
these various clients and in turn pays the clients tax obligation
whether they be local, county, state" and/or federal income taxes,
unemployment taxes and/or other tax liabilities.
b7C 1 I advised that when a client company enrolls
with Hamilton Taft, the company notifies Hamilton of its payroll
dates, pertinent payroll information the state in which the
company is required to pay taxes and the type of taxes which need
to be paid. The company then remits to Hamilton Taft on a timely
basis its payroll tax liability. The client company will also
remit funds to Hamilton Taft which would be used to pay the
aforementioned tax liabilities. Historically the funds were
either wired to a Hamilton Taft Impound Account each time a
payroll is paid by the company or Hamilton Taft gains access to
the companies account by a depository transfer check.
Hamilton Taft was also responsible for filing all
applicable federal, state, county and local tax filing
information on behalf of its client and pay their various taxes
as they become due for the service Hamilton Taft charges its
clients a fee based on the number of times a client renders a
payroll and the number of areas taxing agencies which have to be
ultimately paid. Hamilton Taft also receives the interest in
which it can generate on the funds its clients deposit with it.
All this information is revealed to the client prior to a
contract being entered into by the client and Hamilton Taft.
This is also done orally by Hamilton Taft's sales
representatives.
As Hamilton Taft grew, the-company became concerned
with what its liability may be with the funds they were
collecting on behalf of their clients. Because of this internal
concern in 1981, the firm contacted Baker and McKenzie Attorney/s
at Law, 555 California street, San Francisco, California, 94104
and requested that this firm provide Hamilton with an opinion of
the characterization of the funds it was holding on behalf of its
clients for tax payments.
On October 29, 1981, Baker and McKenzie issued an
oplnl0n that basically stated that at the time a payroll is
rendered, that is paid by the employer, tf-'''' ~.. _~- ~~ __ ~ .L..~ _

the withheld taxes belong to the federal t (.1 / / J


employer becomes a trustee for those fund: 'HIJ t/r''''·m;".w II 71ldd~J Jj
and responsibilities of a trustee are mant NelJ~(,. lo/'fJMle-tL1 ~J.V .;J. T dJd..J'1
j,~ a +r f Id
0/" p/;;J/ ;tJI N /.Jd4
2 t1 ~ e J)~ Ih'tJ!~k 0 I lib; ~j.
In addition various state and federal law mandates how a trustee
needs to act in his capacity as a trustee.
Although Hamilton Taft is not the employer but an
independent agent, it was the opinion of Baker and McKenzie that
the funds are still trust funds and the holder of these funds
(Hamilton Taft) still bears the responsibility of a trustee.
When interview~the Federal Bureau of Investigation
(FBI) in August of 1988, l----J went so far as to state that some
individuals representing clients have stated that the collected
funds need to be put in a bank account separate from other funds
of that particular entity. In addition, during his tenure at
Hamilton Taft, Hamilton Taft considered themselves to be trustees
for those funds on behalf of the various taxing agencies.
By way of background information,I I stated that in
August of 1984, Hamilton Taft was sold to the eigna Corporation
the large insurance conglomerate out of Philadelphia,
Pennsylvania and Hartford, connecticut. At that time, Hamilton
Taft had approximately 900 corporate clients and was handling on
a daily basis, approximately $100,000,000 in client deposits.
According to a personality conflict developed
b ir-
0_
between himself and one formally Executive Vice
President of cigna corpora on W 0 was placed by that corporation
as the person in charge of Hamilton Taft's operation. Because of
the perSjnality differences between l I and 1 lonel I
I _was appointed as President of Hamilton Taft.
Shortly after leaving Hamilton Taft in the latter half
of 1985,1 Istated he became aware that Hamilton Taft started
to lose approximately $100,000 per month. He noted that while he
was President of Hamilton Taft, that the company although not
highly profitable, was able to stay in a slight profit positi~n.
He understands that Hamilton Taft hired another President but the
company continued to lose money in eigna and soon thereafter
began to look for a buyer for Hamilton Taft. In December of
1987, Maxphrama Incorporated of Dallas, Texas paid $500,000 to
eigna Corporation as a down payment for the purchase of Hamil~on
Taft. On February 29, 1988, Maxphrama Incorporated completed its
purchase of Hamilton Taft from Cigna Corporation.
I lalso stated to one I r fonner Executive
Vice president in charge of operations for Hamilton Taft provided
him with the foregoin9 information. r--1~llegedly toldl Ion
February 27,1988 that [ I hacr1um I I transfer
$5,000,000 by wire transfer to a brokerage house in New Orleans,
Louisiana called the Howard Wiel Labluisse Friedricke Investment
security Incorporated. Allegedly~toldl I that this wire
transfer was to purchase a Treasury B~ll at 5 1/2% interest. r--l
allegedly askedI Iwhy she was purchasing a Treasury Bi~
3
with such a short yield period, I (would not respond to
May' 5 question andjust told him to do it. c::::J told I I that
the $5,000,000 was exclusive~stomer funds which were put on
deposit with Hamilton Taft. ~toldl Ithat at the time the
transfer was made, Hamilton Taft did not have any funds of its
own.
I I noted that the form B-K report which_was filed in
the Securities Exchange Commission (SEC) by Maxphrama for the
purchase of Hamilton Taft, Maxphrama states it has used a
$5,000,000 Treasury Bill to secure a promissory note which funds
were used to conclude the Turchase of Hamiltorr Taft from Cigna
Corporation. According tel ItOld him that these funds
had been transferred to th1S brokerage firm from customer funds
in the custody of Hamilton Taft. According to [ I also
advised thatl~' Ihad directed him to wire transfer $50,000
in an unrelated transaction.
In order to assist you in preventing your opinion from
a historical point of View; we are enclosing a copy of the actual
b7C
FD-302 noting interview of. with appropriate copies of I
documents provided byl to our agent.
I
was also interviewed in December of
1988. I--~==~I~h~a~d~b~e~e~n~h~iredby Hamilton Taft as Treasurer-
Manager of the firm. I I is a certified Public Accountant
(CPA) having become a CPA in the state of ta~jf:rnja ~.: [986.
I Ibasically stated that shortly after became
President of Hamilton Taft, she told him t s e WOll e making a
the day to day investment decisions regarding the funds of
Hamilton Taft. She instructed him not to make any investment
unless she okayed them. He explained to her that any monies b7C
collected from the clients only had a two or three day "window"
during which they could be invested prior to having to be paid to
taxing entities. Thereafter, all investments he made, other than
into commercial paper, were done at the direction 01J L.
I I In connection with his responsibilitiesL- ~would
assist in the preparation of the monthly financial statements for
Hamilton Taft. Each month a meeting would be held to discuss a
just completed financial statement for the previous month. At
the close of such a meeting in April, 1988, after the close of
the April financial statements, I
Istated that he had a
conversation with in her office. During this
conversation was bragging on the financial strength of
Maxphrama an ow axphrama was in the process of purchasing C &
H Nationwide Incorporated, a specialized trucking company.
Apparently, in order to substanti~te her statements and the
strength of Maxphrama, she showedL _l the Hamilton financial

30,000,000. I
statement which listed Hamilton Taft's assets in excess of
I
financial picture was quite different than
the financia statements which he had prepared for Hamilton from
the month of April, 1988. 13d.!OIl£ ::r. O~1JJ"'--d. [~'''''rJC'li'' - 11'../ oha .;/IICJ';s C;~/~:'
j) ,,' '.
~'e • ....
,~. ~,
( J" -- . r,}.:..' I: t.n It:/': ,j {. r-t c C } t; ;~ . {;. :.: -t
I .'
, I
f i
..
;')i"{U::. "'4'" .!J'

i ( r I;:"J~'~'
~
pparent tel lin looking at the financial
statement showed him that someone had taken the April r
1988 financ~a s atements of Hamilton and re-did them. The
financial statement prepared for Hamilton Taft showed its
retatU:d eD~Dt·ngS at approximately $200,000. I Istated he
told. _ . during this conversation that he thought the
financlal statements which she had showed him for Hamilton Taft
were a fabrication and not r[gr~se:ta~ive of Hamilton Taft's
actual financial condition. _ _ Jreplied that the people in
Dallas were taking care of these f~nancial statements.
I I
noted that the above incident concerning what he
considered false and misleading financial statements was a major
factor in his ultimate decision to sever his employment with
Hamilton Taft. A copy of the interview form FD-302 the interview
ofl I is incorporated as part of this communication.
It should also be noted that onel Iwas
interviewed in september of 1988 regarding his former employment
with Hamilton Taft. At the time of this interview,c==J stated
that he was self-employed as a consultant specializ1ng in
employment taxes. He stated that prior to being self-employed,
he was employed for five years with Hamilton Taft in San
Francisco as their Chief Operations Officer and Executive Vice
President. A copy of the interview conducted withe==] is
attached hereto.

This matter was informally presented to the United


.~i states Attorney's office which concluded that there was a lack of ;
A~ evidence to support the violation of any federal law at that
time. Our case was subsequently closed. a/Dct 0/(/ ~)iJS rJ!(f/..f.~././_(~J0';~:j,
On December 24, 1990, ~the office recei~com-e\aint./.. ,-".1.1,.
rcall from one I t Contr~ller and CPA. l I
/ ~tated that he was the current Controller of Hamilton Taft and
that ~e was calling the FBI becaus 7 he felt that his e~ployer was} I~ /1
cheat1ng the Internal Revenue Servlce (IRS) by not pay1ng ta~es 1,--1/1 .':> : ~ {J
i owing to not only the IRS but other taxing entities when -they -{.! tb,l).:.:

W
"
l
(tbe;e
.
we:re due. I

_
ladvised that at least $20,000,000 in client iJr:r!-~.f·
funds have been transferred to accounts controlled by Chip
Armstrong, the new CEO of Hamilton Taft. I I stated that
fllfdS were used to purchase one or more companies in Tex~s.
. stated that Hamilton Taft had approXimatel: 100 .
,:'b,ui

emp oyees in San Francisco in July of 1990. ~ t advised


Armstrong is basically operating a Ponzi scheme, ut~lizing the
tens of millions of dollars which are sent to Hamilton Taft for
the ultimate payment of tax liabilities sustained by Hamilton
Taft's clients. 1 I has documentation to support his claims .£~";..: ~\ ~
~\. and is scheduled to present same to the FBI on Jar:uary 13 t ~991 '=7-~'-?-- ~-. ~
at 10: 00 am. I I furth~r stated that th:-re 15 an ongolng . ~ ~~-~ ~
. procedure for prov~d~ng lUll~ng letters to c11ents who actually ~ L~~:
\ complain to Hamilton Taft when they J the client, receive a late {Z---r-, :' ~
\ ~ .:: t\'''~ :
''-. r·o f.t ~....,,:
5 '\......, 1: ~~ .
~ 'i" .:- .......
~ t.:,.....fJ. -..,
~'~,,, Jy'
~~D t :~;:-:
b7C

notice from the IRS. I J states that a letter on Hamilton


Taft stationery is generated to the IRS berating the IRS for
having made an error in showing at least the front copy of a
check drawn on Hamilton Taft's checking account allegedly
demonstrating that payment was actually made on a particular date
for a particular tax liability. These checks were never sent to
the IRS but a copy of the letter was sent to the client, thereby
stalling the clients further inquiries.
Please contact us at your earliest convenience so that
we might discuss this matter in greater detail.
Sincerely yours,

RICHARD W. HELD
Special Agent in Charge

By: b7C
Agent

6*

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